UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

FORM 10-K

| | (Mark
One)
| | ----------

| | (X) |  | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | --- |  | ------------------------------------------------------------------------------------

For the fiscal year
ended January 30, 2005

OR

| | (_) |  | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | --- |  | ----------------------------------------------------------------------------------------

| | For
the transition period from _____________ to ___________
| | -----------------------------------------------------------



|Commission
      File Number | 0-20269
|---------------------------- | -------

DUCKWALL-ALCO
  STORES, INC.

---

(Exact name
  of registrant as specified in its charter)


|Kansas
      (State or other jurisdiction of 
      incorporation or organization)       |  | 48-0201080
      (I.R.S. Employer 
      Identification No.)
|---------------------------------------------------------------------------------------- |  | ------------------------------------------------------------
|                                                                                         |  |                                                             
|401 Cottage Street 
      Abilene, Kansas
      (Address of principal executive offices) |  | 67410-2832
      (Zip Code)                                 



|Registrants
      telephone number including area code: | (785)
      263-3350
|-------------------------------------------------------- | --------------------

Securities registered
  pursuant to Section 12(b) of the Act: 
  NONE

Securities registered
  pursuant to Section 12(g) of the Act: 
  Common Stock, par value $.0001 per share

---

(Title
  of Class)


Indicate
  by check mark whether the registrant (1) has filed all reports required to be
  filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
  preceding 12 months (or for such shorter period that the registrant was required
  to file such reports), and (2) has been subject to such filing requirements
  for the past 90 days. Yes |X|    No |_|

Indicate
  by check mark whether the registrant is an accelerated filer (as defined in
  Rule 12b-2 of the Act). Yes |_|    No |X|

Indicate
  by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
  S-K is not contained herein, and will not be contained, to the best of registrants
  knowledge, in definitive proxy or information statements incorporated by reference
  in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

The
aggregate  market value of the  3,631,927  shares of Common Stock,   par value $.0001 per
share,  of the registrant held by  non-affiliates  of the   registrant is $60,181,030 on
August 2, 2004,  based on a closing sale price of   $16.57.  As of April 8, 2005,  there
 were  4,476,232  shares of Common  Stock   outstanding.

Documents
 incorporated by reference:  portions of the  Registrants   Proxy Statement for the 2005
Annual Meeting of Stockholders  are  incorporated   by reference in Part III hereof.

---

PART I

ITEM 1. BUSINESS

History

Duckwall-ALCO
 Stores,  Inc.,  (the  Company or  Registrant),  was   founded as a general
merchandising  operation in 1901 in Abilene, Kansas by A.   L. Duckwall.  From its
founding  until 1968, the Company  conducted its retail   operations as small variety or
dime stores. In 1968, the Company followed an   emerging  trend to discount  retailing
 when it opened its first ALCO discount   store. In 1991, the Company adopted its current
business strategy that focuses   on under-served markets that have no direct competition
from another full-line   discount  retailer.  This strategy  includes  opening  either an
ALCO discount   store or a Duckwall  variety  store,  depending  upon the market  size.
 As of   January  30,  2005,  the Company  operates  266 retail  stores  located in the
  central United States,  consisting of 186 ALCO retail  discount  stores and 80
  Duckwall variety stores.

The
Company was incorporated on July 2, 1915 under the laws of Kansas.   The Companys
 executive  offices are located at 401 Cottage Street,  Abilene,   Kansas 67410-2832, and
its telephone number is (785) 263-3350.

General

The
Company is a regional  retailer  operating 266 stores in 21 states   in the central
 United  States.  The Companys  strategy is to target  smaller   markets not served by
other  regional or national  full-line  retail  discount   chains and to provide the most
 convenient  access to retail  shopping  within   each  market.  The  Companys  ALCO
 discount  stores  offer  a full  line  of   merchandise  consisting of approximately
35,000 items,  including  automotive,   candy, crafts, domestics,  electronics,  fabrics,
furniture,  hardware, health   and beauty aids,  housewares,  jewelry,  ladies, mens
and childrens apparel   and shoes,  pre-recorded  music and video,  sporting  goods,
 seasonal  items,   stationery and toys.  The Companys  smaller  Duckwall  variety
stores offer a   more limited selection of similar merchandise.

Of
the Companys 186 ALCO discount  stores,  151 stores are located in   communities that do
not have another full-line discounter. The Company intends   to continue  its  strategy
of opening  ALCO stores in markets that do not have   other full-line  discount
 retailers and where the opening of an ALCO store is   likely to be preemptive to the
entry by other full-line  discount  competitors   in the market.  The ALCO discount
 stores account for 92% of the Companys net   sales.  The current ALCO store  averages
 20,600 square feet of selling space.   However,  the Companys store expansion  program
is primarily  directed toward   opening stores with a design prototype of approximately
 18,000 square feet of   selling space  (Class 18 Stores).  Based on the  Companys
 experience,  the   design of the Class 18 Stores  produces  a greater  return on
 investment  for   newly opened stores.

The
 Companys 80 Duckwall  variety  stores are  primarily  located in   communities  of less
 than  2,500  residents  and are  designed  to act as the   primary convenience retailer
in these smaller communities. These stores, which   account for the remaining 8% of the
Companys net sales, average approximately   5,500  square  feet of selling  space and
offer  approximately  12,000  items.   Operating Duckwall stores offer the Company the
opportunity to serve the needs   of a community that would not support a full-line retail
discount store with a   reduced investment per store.

All
of the Companys  discount and variety  stores are serviced by the   Companys 352,000
square foot distribution center in Abilene, Kansas.

Business Strategy

The
 Companys  focus  over the last  three  fiscal  years has been to   implement new
merchandising and marketing initiatives in an effort to increase   customer  traffic and
same-store  sales.  One of the initiatives was a remodel   program.  During Fiscal 2005,
the Company  remodeled 16 stores.  During Fiscal   2004  and  fiscal  2003,  the  Company
 remodeled  23  stores  and 32  stores,   respectively.  These stores feature an improved
 merchandise mix, with greater   emphasis on everyday  low values that are  highlighted
 through a new and more   dominant sign program.  The Company has also opened a net total
of 22 new ALCO   stores  during  the last four  fiscal  years  that  incorporate  the
 enhanced   merchandising  concepts of the remodeled stores,  bringing the total number
of   stores  with this new  format to 125 at the end of Fiscal  2005.  The  Company
  plans to open approximately eight to ten ALCO stores in fiscal 2006.

To
reduce the number of  unproductive  stores,  the  Company is in the   process  of
 closing  20  stores.  See Item 7.  Managements  Discussion  and   Analysis of
Financial Condition and Results of  Operation-Subsequent  Events.   The Company
continues to close  non-performing  stores in competitive markets,   which slows the
growth of overall store count.

---



| | The Company
      intends to focus on executing a business strategy that includes the following
      key components:
| | ---------------------------------------------------------------------------------------------------------------------

| | Markets:The Company intends to open ALCO stores in towns with populations of
typically less than 5,000 that are in trade areas with populations of less
than 16,000 where: (1) there is no direct competition from national or
regional full-line discount retailers; (2) economic and demographic criteria
indicate the market is able to commercially support a discount retailer;
and (3) the opening of an ALCO store would significantly reduce the
likelihood of the entry into such market by another full-line discount retailer.
This key component of the Companys strategy has guided the Company in both its
opening of new stores and in its closing of existing stores. Since 1991,
the Company has opened 141 ALCO discount stores and 90 Duckwall variety
stores. Except for eleven stores, these stores were opened in a primary
market in which there was no direct competition from a national or
regional full-line discount retailer.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Market
Selection:The Company utilizes a detailed process to analyze under-served
markets which includes examining factors such as distance from competition,
trade area, demographics, retail sales levels, existence and stability
of major employers, location of county government, disposable income,
and distance from the Companys distribution center. Markets that are
determined to be sizable enough to support an ALCO or a Duckwall store, and
that have no direct competition from another full-line discount retailer,
are examined closely and eventually selected or passed over by the
Companys experienced management team.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Store
Expansion:The Companys expansion program is designed primarily around the
prototype Class 18 Store. This prototype details shelf space, merchandise
presentation, store items to be offered, parking, storage requirements, as
well as other store design considerations. The 18,000 square feet of selling
space is large enough to permit a full line of the Companys
merchandise, while minimizing capital expenditures, labor costs and
general overhead costs. The Company will also consider opportunities in
acceptable markets to open ALCO stores in available space in buildings
already constructed. The expansion strategy for its Duckwall variety stores
is based on opportunities in smaller communities where there is a need and
where existing premises are available for lease at a relatively low cost,
resulting in limited downside exposure. Three Duckwall stores were opened in
Fiscal 2005.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Technology:The Company is continually improving its management information
technologies to support the operation of the Company. During the last
three fiscal years, the Company has devoted resources to development of
systems that have improved information available to management and improved
specific operational efficiencies. During fiscal 2005, the Company began the
process of evaluating its options to replace and upgrade its store POS hardware,
which varies in age from 7 to over 10 years old, and related software. The
objective of the upgrade will be to take advantage of newer technology
available today and re-engineer the stores to eliminate inefficiencies
caused by the older technology. This will be a significant undertaking and the
total cost of the changeover will be material. In the second half of Fiscal
2006, the Company plans to install a pilot store with the new POS
systems and begin the rollout to as many stores as possible. The
Company also plans to begin the process of replacing its outdated
payroll, merchandising, and accounts payable systems.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Advertising
and Promotion:The Company utilizes full-color photography advertising
circulars of 16 to 24 pages distributed through newspaper insertion or, in the
case of inadequate newspaper coverage, through direct mail. During Fiscal
2005, these circulars were distributed 34 times in ALCO markets. In its
Duckwall markets, the Company distributes a full-color, 4 page insert.
Distributed through insertion in the local papers, this program has been deemed
a success. The Companys marketing program is designed to create awareness
and recognition of its competitive pricing on a comprehensive merchandise
selection for the whole family. During fiscal 2006, the Company will
distribute approximately 34 circulars in ALCO markets, and 12 in the
Duckwall markets.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Store
Environment:The Companys stores are open, clean, bright and offer a
pleasant atmosphere with disciplined product presentation, attractive
displays and efficient check-out procedures. The Company endeavors to
staff its stores with courteous, highly motivated, knowledgeable store
associates in order to provide a convenient, friendly and enjoyable
shopping experience.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Store Development

The
 Company  expects to open  approximately  eight to ten ALCO  stores during fiscal year
2006. The Companys  strategy  regarding store development is to increase sales and
 profitability at existing stores by continually  refining the  merchandising  mix and
improving  operating  efficiencies,  and through new store  openings in the Companys
 targeted base of  under-served  markets in the central  United States.  The following
 table  summarizes  the Companys  growth during the past three fiscal years:

---

|               | 2003 | 2004     | 2005
|-------------- | ---- | -------- | ----
|               | ALCO | Duckwall | ALCO
|Stores Opened  |      | 5        |     
|Stores Closed  |      | 2        |     
|               |      |          |     
|Net New Stores |      | 3        |     

As
of January  30,  2005,  the Company  owned 12 ALCO and one  Duckwall location,  and
leased 174 ALCO and 79 Duckwall  store  locations.  The Companys present  intention  is
to lease all new stores.  The Company may own some of the ALCO locations,  but will
generally lease these store  locations.  The estimated investment  to open a new Class 18
ALCO  Store  that is leased is  approximately $625,000 for the equipment and inventory.

As
 discussed  above,  before  entering  a new  market  with an ALCO or Duckwall store, the
Company analyzes and screens available competitive,  market, and  demographic  data to
evaluate the  suitability  and  attractiveness  of the potential market. The screening
process also involves a visit by officers of the Company to more subjectively  evaluate
the potential new site. The Company is in the site  selection  and/or  procurement
 process in  approximately  29 of those markets,  each of  which  has  been  approved  by
the  Company  for a new  store location.

Store Environment and
Merchandising

The
Company manages its stores to attractively and conveniently display a full line of
merchandise  within the confines of the stores  available square footage. Corporate
merchandising direction is provided to each ALCO and Duckwall store to ensure a
consistent  company-wide  store  presentation.  To  facilitate long-term merchandising
planning, the Company divides its merchandise into three core categories driven by the
Companys  customer profile:  primary,  secondary, and convenience.  The primary core
receives  managements  primary focus, with a wide  assortment of merchandise  being
placed in the most  accessible  locations within the stores  and  receiving  significant
 promotional  consideration.  The secondary  core  consists of  categories  of
 merchandise  for which the Company maintains a strong  assortment  that is easily and
readily  identifiable  by its customers.  The convenience core consists of categories of
merchandise for which ALCO will maintain convenient (but limited)  assortments,  focusing
on key items that are in keeping with customers expectations for a discount store.
Secondary and convenience cores include merchandise that the Company feels is important
to carry, as the target  customer  expects to find them within a discount store and they
ensure a high level of customer traffic. The Company continually  evaluates and ranks all
product lines, shifting product  classifications when necessary to reflect the changing
demand for products.

Purchasing

Procurement
 and  merchandising  of  products is directed by a staff of three Vice President -
Divisional  Merchandise Managers who are each responsible for specific product
 categories.  The Company employs 19 merchandise buyers and five  assistant  buyers  who
 each  report  to a  Vice  President  -  Divisional Merchandise Manager. Buyers are
assisted by a management information system that provides  them with current price and
volume  information  by SKU, thus allowing them to react quickly with buying and pricing
 adjustments  dictated by customer buying patterns.

The
 Company  purchases  its  merchandise  from   approximately   2,000 suppliers.  The
Company  generally does not utilize  long-term supply contracts. Only one supplier
accounted for more than 5% of the Companys total purchases in Fiscal 2005 and competing
 brand name and private  label  products are available from other  suppliers  at
 competitive  prices.  The Company  believes  that its relationships  with its  suppliers
are good and that the loss of any one or more of its suppliers would not have a material
adverse effect on the Company.

Pricing

Merchandise
 pricing is done at the corporate  level and is essentially the  same  for  all  of the
 ALCO  stores,  regardless  of the  level  of  local competition. This pricing strategy,
with its promotional activities, is designed to bring consistent value to the customer.
In fiscal 2006, promotions on various items will be offered approximately 34 times
through advertising circulars. Even though the same general pricing and  advertising
 activities are carried out for all ALCO  stores,  the  impact of such  activities  is
 significantly  different depending upon the level of competition in the market.

---

Distribution and
Transportation

The
 Company  operates a 352,000  square  foot  distribution  center in Abilene, Kansas, from
which it services each of the 186 ALCO discount stores and 80  Duckwall  variety  stores.
 This  distribution  center  is  responsible  for distributing  approximately 80% of the
Companys  merchandise,  with the balance being  delivered  directly  to  the  Companys
 stores  by  its  vendors.   This distribution  center  ships to each of the  Companys
 ALCO  stores once a week, primarily through irregular route common carriers. The Company
also utilizes its wholly owned subsidiary, SPD Truck Line, Inc. (the Subsidiary) for
delivery to the stores.  The  distribution  center is fully  integrated  into the
 Companys management information system, allowing the Company to utilize such cost
cutting efficiencies   as  perpetual   inventories,   safety   programs,   and  employee
productivity software.

The
 Subsidiary  acts  as  a  contract   carrier  for  the  Company  in transporting goods to
and from its stores. The Subsidiary uses five tractors and leases 23 trailers for such
deliveries.

Management Information
Systems

The
Company has  committed  significant  resources  to the purchase and application  of
 available  computer  hardware  and  software  to  its  discount retailing  operations
with the intent to lower costs,  improve  customer service and enhance general business
planning.

In
 general,  the  Companys  merchandising  systems  are  designed  to integrate the key
retailing functions of seasonal merchandise planning, purchase order  management,
 merchandise  distribution,  sales  information and inventory maintenance  and
 replenishment.  All of the Companys ALCO discount stores have POS computer  terminals
 that record  certain sales data in a format that can be transmitted  nightly to the
Companys data processing  facility where it is used to produce  daily and weekly
 management  reports.  During the last three fiscal years,  the Company has devoted
 resources to  development  of systems that have improved  information  available to
management and improved specific operational efficiencies.

Approximately
 2,000 of the Companys  merchandise  suppliers currently participate in the Companys
 electronic data interchange (EDI) system,  which makes it possible for the Company to
place  purchase  orders  electronically.  A number  of  these  suppliers  are  able to
 utilize  additional  EDI  functions, including  transmitting invoices and advance
shipment notices to the Company and receiving sales history from the Company.

Store Locations

As
of January  30,  2005,  the Company  operated  186 ALCO stores in 21 states located in
smaller  communities in the central United States. Of the ALCO stores, 12 are owned by
the Company and 174 are leased by the Company.  The ALCO stores  average  approximately
 20,600  square  feet of selling  space,  with an additional  5,000 square feet  utilized
for  merchandise  processing,  temporary storage and  administration.  The Company also
operates 80 Duckwall stores in 10 states, one of which is owned by the Company,  and 79
of which are leased by the Company. The geographic distribution of the Companys stores
is as follows:

Duckwall Stores (80)

|Arkansas (2)   |  | Colorado (6)     |  | Iowa (5)      |  | Kansas (33)      |  | Nebraska (8) | 
|-------------- |  | ---------------- |  | ------------- |  | ---------------- |  | ------------ | 
|New Mexico (1) |  | North Dakota (1) |  | Oklahoma (10) |  | South Dakota (3) |  | Texas (11)   | 

ALCO Stores (186)

|Arizona (9)    |  | Arkansas (5)     |  | Colorado (14) |  | Idaho (3)    |  | Illinois (7)     |  | Indiana (13)  | 
|-------------- |  | ---------------- |  | ------------- |  | ------------ |  | ---------------- |  | ------------- | 
|Iowa (8)       |  | Kansas (24)      |  | Minnesota (8) |  | Missouri (6) |  | Montana (1)      |  | Nebraska (15) | 
|New Mexico (9) |  | North Dakota (7) |  | Ohio (6)      |  | Oklahoma (8) |  | South Dakota (9) |  | Texas (24)    | 
|Utah (6)       |  | Wisconsin (1)    |  | Wyoming (3)   | 

Competition

While
the discount  retail  business in general is highly  competitive, the Companys business
strategy is to locate its ALCO discount stores in smaller markets where there is no
direct  competition  with larger  national or regional full-line  discount  chains,  and
where it is  believed no such  competition  is likely to develop.  Accordingly, the
Companys primary method of competing is to offer  its  customers  a  conveniently
 located  store  with  a  wide  range  of merchandise at discount prices in a primary
trade area

---

population  under 16,000 that does
not have a large national or regional  full-line  discount store.  The Company  believes
 that trade  area size is a  significant  deterrent  to larger national and regional
 full-line  discount  chains.  Duckwall variety stores are located  in very  small
 markets,  and  like  the  ALCO  stores,  emphasize  the convenience of location to the
primary customer base.

In
 the  discount  retail  business  in  general,  price,   merchandise selection,
 merchandise  quality,  advertising  and  customer  service  are  all important aspects
of competing.  The Company  encounters direct competition with national full-line
discount stores in 27 of its ALCO markets, and another 8 ALCO stores are in direct
 competition with regional  full-line  discount stores. The competing  regional and
national  full-line  discount  retailers  are  generally larger  than the  Company and
the stores of such  competitors  in the  Companys markets are substantially larger, have
a somewhat wider selection of merchandise and are very price competitive in some lines of
merchandise.  Where there are no national or regional  full-line  discount retail stores
directly  competing with the Companys ALCO stores, the Companys  customers
 nevertheless shop at retail discount  stores and other retailers  located in regional
trade centers,  and to that extent the Company  competes with such discount  stores and
retailers.  The Company  also  competes for retail  sales with mail order  companies,
 specialty retailers,  mass merchandisers,  dollar stores,  manufacturers outlets, and
the internet.  In the 138  markets in which the  Company  operates a Class 18 Store, only
three markets have direct competition from a national or regional full-line discount
 retailer.  The Company  competes with dollar  stores in  approximately three-fourths of
its ALCO stores and approximately forty percent of its Duckwall stores.

Executive Officers of
the Company

The
following table sets forth the names,  ages,  positions and certain other  information
 regarding the executive  officers of the Company as of April 29, 2005.

|Name                 | Age |  | Position
|-------------------- | --- |  | --------
|Bruce C. Dale        | 57  |  |         
|James E. Schoenbeck  | 61  |  |         
|Richard A. Mansfield | 49  |  |         
|Tom L. Canfield, Jr  | 51  |  |         

---

Except as set forth below,  all of
the executive  officers have been  associated with the Company in their present  position
or other  capacity for more than the past five years. There are no family  relationships
among the executive officers of the Company.

Bruce
C. Dalehas served as President and Chief Executive Officer of the Company since March
28, 2005. Mr. Dale has approximately 35 years of experience in the retail industry. Mr.
Dale was with Michaels Stores for ten years, where he served for eight of those years as
president of Aaron Brothers Art & Framing.

James
E. Schoenbeckhas served as Vice President of Store Operations and Advertising since
1988. From 1979 to 1988, Mr. Schoenbeck served as the Vice President of
Administration. Mr. Schoenbeck has approximately 30 years of experience in the
retail industry.

Richard
  A. Mansfieldhas served as Vice President  Finance and Treasurer of
  the Company since May 1997. For the two years prior to that he served as Chief
  Financial Officer of Country General Stores, Inc., a regional chain of specialty
  farm and ranch stores located in the Midwest. For the three years prior to that
  he served as Chief Financial Officer of American Laminates, Inc. and Relco,
  Inc. Mr. Mansfield has approximately 24 years of experience in the retail industry.

Tom
  L. Canfield, Jr.has served as Vice President  Distribution and Administration
  since 1992. From 1973 to 1992, Mr. Canfield served in various capacities with
  the Company. Mr. Canfield has approximately 32 years of experience in the retail
  industry.

Employees

As
of January  30,  2005,  the  Company  employed  approximately  4,900 people.  Of these
 employees,  approximately  500 were  employed  in the general office and distribution
 center in Abilene,  3,900 in the ALCO stores and 500 in the Duckwall stores. Additional
employees are hired on a seasonal basis, most of whom are sales personnel. There is no
collective bargaining agent for any of the Companys  employees.  The Company considers
its relations with its employees to be excellent.

---

Government Regulation

The
Company is subject to numerous federal,  state and local government laws and regulations,
including those relating to the development,  construction and  operation  of the
 Companys  stores.  The Company is also  subject to laws governing its relationship with
employees,  including minimum wage requirements, laws and regulations  relating to
overtime,  working and safety conditions,  and citizenship requirements.  Material
increases in the cost of compliance with any applicable law or regulation and similar
matters could  materially and adversely affect the Company.

In
1996, Congress enacted The Small Business Job Protection Act of 1996 (the Act), raising
the hourly minimum wage from $4.75 to $5.15 effective as of September  1, 1997.  The
majority of the  Companys  store  employees  were paid hourly  wages below these
 increased  minimum wage rates.  As a result,  the Act increased the Companys  payroll
 expense.  Additional  increases in the minimum wage could have a material impact on the
results of the Companys  operations if it is unable to pass those increased costs on to
customers, or the Company cant find ways to reduce SG&A expenses in other areas, or
if sales are not increasing at a rate large enough to offset the impact.

Quarterly Fluctuations

Quarterly
 results of  operations  have  historically  fluctuated  as a result of retail
 consumers  purchasing  patterns,  with the highest quarter in terms of sales and
profitability being the fourth quarter.  Quarterly results of operations will likely
continue to fluctuate  significantly  as a result of such patterns and may fluctuate due
to the timing of new store openings.

Economic Conditions

Similar
to other retail  businesses,  the Companys  operations  may be affected  adversely by
general  economic  conditions  and events which result in reduced  consumer  spending in
the markets served by its stores.  Also,  smaller communities  where the Companys
 stores are located may be dependent upon a few large employers or may be significantly
 affected by economic  conditions in the industry upon which the community relies for its
economic viability, such as the agricultural  industry.  This may make the Companys
stores more vulnerable to a downturn in a particular segment of the economy than the
Companys  competitors, which  operate in markets  which are larger  metropolitan  areas
where the local economy is more diverse.

Dependence on Officers

The
development of the Companys  business is largely  dependent on the efforts of its
 current  management  team headed by Bruce C. Dale and four other executive  officers,
 as well as 11 other officers.  The loss of the services of one or more of these
 officers  could  have a  material  adverse  effect  on the Company.

ITEM 2.  PROPERTIES.

The
 Company  owns  facilities  in Abilene,  Kansas  that  consist of a general  office
 (approximately  35,000 square feet),  the  Distribution  Center (approximately  352,000
square feet) and additional  warehouse space adjacent to the general office.

Twelve
of the ALCO  stores and one of the  Duckwall  stores  operate in buildings  owned  by the
 Company.  The  remainder  of  the  stores  operate  in properties  leased by the
 Company.  As of January  30,  2005,  such ALCO leases account for approximately
 4,400,000 square feet of lease space, which expire as follows:  approximately  409,952
square feet (9.3%) expire  between  January 30, 2005 and January 29, 2006;  approximately
 515,068  square feet  (11.7%)  expire between January 30, 2006 and January 28, 2007; and
approximately  649,383 square feet (14.7%) expire between January 29, 2007 and January
28, 2008. The remainder of the  leases  expire  through  2021.  All  Duckwall  store
 leases  have terms remaining of thirty  eight  months or less.  The majority of the
leases that are about to expire have  renewal  options with lease terms that are the same
as the existing lease.

The
Company is in the process of closing 20 stores.  Two of the closing stores are owned,
 and the remaining 18 stores  comprise  approximately  202,000 square feet of leased
space.

ITEM 3.
              LEGAL PROCEEDINGS.

Other
than routine  litigation from time to time in the ordinary course of business, the
Company is not a party to any material litigation.

ITEM 4.
              SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No
matters were submitted to a vote of the  stockholders of the Company during the fourth
quarter of the fiscal year ended January 30, 2005.

---

PART II

|ITEM 5. |  | MARKET
      FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES.
|------- |  | -------------------------------------------------------------------------------------------------------------------------

The
Common Stock of the Company is quoted on the NASDAQ National Market tier of The NASDAQ
 Stock Market under the symbol  DUCK. The  following  table sets forth the range of
high and low bid  information  for the Companys  Common Stock for each quarter of Fiscal
2005 and 2004.

|            |  | High           | Low
|----------- |  | -------------- | ---
|Fiscal 2005 |  | First quarter  |    
|            |  | Second quarter |    
|            |  | Third quarter  |    
|            |  | Fourth quarter |    
|            |  |                |    
|Fiscal 2004 |  | First quarter  |    
|            |  | Second quarter |    
|            |  | Third quarter  |    
|            |  | Fourth quarter |    

As
of April 8, 2005, there were  approximately  1,249 holders of record of the Common Stock
of the Company.  The Company has not paid cash  dividends on its Common  Stock during the
last five fiscal  years.  The terms of the Loan and Security  Agreement,  dated as of
April 15, 2002,  between the Company and Fleet Retail  Finance  Inc.  allow for the
payment of  dividends  unless  certain loan covenants are triggered, which are not
expected to occur during fiscal 2006.

Equity Compensation
Plan Information

|                                      
|--------------------------------------
|Plan Category                         
|                                      
|Equity compensation plans approved    
|by stockholders:                      
|1993 Incentive Stock
      Option Plan
|2003 Incentive Stock
      Option Plan
|Equity compensation plans not         
|approved by stockholders              
|                                      

No Recent Dividend
Payments; Restrictions on Payment of Dividends

The
Company has not paid a cash  dividend on the Common  Stock for more than five years,  and
it has no plans to commence  paying cash  dividends on the Common Stock. The Companys
 revolving loan credit facility currently allows the payment of cash dividends unless
certain loan covenants are triggered.

ITEM 6. SELECTED
FINANCIAL DATA.

SELECTED
CONSOLIDATED FINANCIAL DATA                                    (dollars in thousands,
except per share and store data)

The
selected consolidated financial data presented below for, and as of the end of, each of
the last five fiscal years under the captions  Statements of Operations  Data and
 Balance  Sheet  Data have been  derived  from the  audited consolidated  financial
 statements of the Company.  This data should be read in conjunction with  Managements
 Discussion and Analysis of Financial  Condition and Results of Operations (Item 7) and
the consolidated  financial  statements, related notes, and other financial information
included herein (Item 8).

---

|                                                                         | Fiscal Year Ended           
|------------------------------------------------------------------------ | ----------------------------
|                                                                         | January
      30,
      2005
|Statements of Operations Data                                            |                             
|Net sales                                                                |                             
|Cost of sales                                                            |                             
|                                                                         |                             
|Gross margin                                                             |                             
|Selling, general and administrative
      expenses                       |                             
|(including provision for
      asset impairment and store closure)       |                             
|Depreciation and amortization                                            |                             
|                                                                         |                             
|Income from continuing operations                                        |                             
|Interest expense                                                         |                             
|                                                                         |                             
|Earnings from continuing operations
      before income                  |                             
|taxes, discontinued operations
      and cumulative effect               |                             
|of accounting change                                                     |                             
|Income tax expense                                                       |                             
|                                                                         |                             
|Earnings from continuing operations
      before                         |                             
|discontinued operations
      and cumulative effect of accounting change |                             
|(Loss) income from discontinued operations,
      net of income tax (1)  |                             
|Cumulative effect of accounting change,
      net of income              |                             
|tax benefit of $111 in
      2001 (2)                                    |                             
|                                                                         |                             
|Net earnings                                                             |                             
|                                                                         |                             
|                                                                         |                             
|Per Share Information:                                                   |                             
|Earnings (loss) per share
      - basic:                                 |                             
|Earnings
      before discontinued operations                            |                             
|and
      cumulative effect of accounting change                         |                             
|Discontinued
      operations                                            |                             
|Cumulative
      effect of accounting change                             |                             
|                                                                         |                             
|Net
      earnings                                                       |                             
|                                                                         |                             
|                                                                         |                             
|Earnings (loss) per share
      - diluted:                               |                             
|Earnings
      before discontinued operations                            |                             
|and
      cumulative effect of accounting change                         |                             
|Discontinued
      operations                                            |                             
|Cumulative
      effect of accounting change                             |                             
|                                                                         |                             
|Net
      earnings                                                       |                             
|                                                                         |                             
|                                                                         |                             
|Weighted average shares outstanding:                                     |                             
|Basic                                                                    |                             
|Diluted                                                                  |                             
|                                                                         |                             
|                                                                         |                             
|Operating Data                                                           |                             
|Stores open at year-end                                                  |                             
|Stores in non-competitive markets
      at year-end (3)                  |                             
|Percentage of total stores in                                            |                             
|non-competitive markets
      (3)                                        |                             
|Net sales of stores in non-competitive
      markets (3)                 |                             
|Percentage of net sales from stores
      in                             |                             
|non-competitive markets
      (3)                                        |                             
|Comparable store sales for all stores
      (4)                          |                             
|Comparable store sales for stores
      in                               |                             
|non-competitive markets
      (3)(4)                                     |                             
|                                                                         |                             
|                                                                         |                             
|Balance Sheet Data                                                       |                             
|Total assets                                                             |                             
|Total debt (includes capital lease                                       |                             
|obligation and current
      maturities)                                 |                             
|Stockholders equity                                                     |                             

|(1) |  | Effective
  February  4,  2002,  the  Company  adopted  SFAS  No.  144,          Accounting  for
the Impairment or Disposal of Long-Lived  Assets.  SFAS          No. 144 provides a
single  accounting model for long-lived assets to be          disposed of. The statement
also changes the criteria for classifying an          asset as held for sale,  broadens
the scope of assets to be disposed of          that qualify for reporting as
 discontinued  operations and changes the          timing of recognizing  losses on such
operations.  The adoption of SFAS          No. 144 resulted in the reclassification as
discontinued  operations of          certain prior year revenue and expense activity
related to seven, eight          and five  stores  closed  during  fiscal  years 2005,
 2004,  and 2003,          respectively.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|(2) |  | Effective
October 30, 2000, the Company,  in response to the Securities          and Exchange
 Commission Staff  Accounting  Bulletin No. 101 (SAB 101),          changed its method of
accounting for layaway sales,  retroactive to the          beginning of the year.
 Previously,  the Company  recognized revenue on          the entire amount of layaway
sales at the time  merchandise  was placed          on  layaway.  Under  the new  method,
 revenue  on  layaway  sales  are          recognized upon delivery of the merchandise to
the customer.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Non-competitive
 markets  refer to those markets where there is not a          national or regional
 full-line  discount  store located in the primary          market   served  by  the
 Company.   The   Companys   stores  in  such          non-competitive  markets
 nevertheless  face  competition  from various          sources. See Item 1
Business-Competition.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Percentages,
 as adjusted  to a  comparable  52 week year,  reflect the          increase or decrease
based upon a comparison of the  applicable  fiscal          year with the immediately
 preceding fiscal year for stores open during          the entirety of both years.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 7. |  | MANAGEMENTS
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
|------- |  | -------------------------------------------------------------------------------------------

Overview

Operations.The Company is a regional discount retailer operating in 21 states in the central
United States, with two business segments, consisting of:

| |  |  | the
ALCO Stores  segment.  The Company  operates  186 ALCO Stores which          offer a wide
variety of general  merchandise  and a limited  variety of          food products and
account for 92% of the Companys Fiscal 2005 sales.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | the
 Duckwall  Stores and all other  segment.  The Company  operates 80          Duckwall
 Stores  which  offer  a  more  limited  general   merchandise          selection,  but
serve the needs of a community that is not large enough          to support a full-line
retail discount store, and account for 8% of the          Companys Fiscal 2005 sales.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Store
counts are as of January 30, 2005. The Companys fiscal year ends on the Sunday closest
to January 31. Fiscal 2005,  2004, and 2003 each consisted of 52 weeks. For subsequent
information, see Subsequent Events.

As
used below,  the term  competitive  market refers to any market in which  there is one
or more  national  or  regional  full-line  discount  stores located in the primary
market served by the Company.  The term  non-competitive market refers to any market in
which there is no national or regional full-line discount  store located in the primary
 market served by the Company.  Even in a non-competitive market, the Company faces
competition from a variety of sources. See Item 1 Business-Competition.

The
Retail Industry.The Companys business is generally a highly competitive
business. However, to reduce the competition and improve the Companys
performance, the Companys overall business strategy involves identifying, and
opening stores in under-served markets that currently have no direct competition from
another larger national or regional full-line discount retailer and providing the most
convenient access to retail shopping within those markets. A key aspect of this
strategy includes placing the Companys stores in markets where the Company believes
no such competition is likely to develop. This strategy does not eliminate the
competition for the Companys stores as the Companys customers still shop at retail
discount stores and other retailers located in regional trade centers. The Company
also competes for retail sales with mail order companies, specialty retailers, mass
merchandisers, dollar stores, manufacturers outlets, and the internet.

Key
Items in Fiscal 2005.Significant financial items during Fiscal 2005 were:

| |  |  | Net
sales increased 2.2% to $433.8 million.  Same store sales increased 0.1%.
| | - |  | -----------------------------------------------------------------------------

| |  |  | Gross
margin percentage decreased to 32.9% compared to 33.2% in the prior fiscal year.
| | - |  | --------------------------------------------------------------------------------------

| |  |  | Selling,
 general,  and administrative  (SG&A) expense percentage  increased to 29.6% compared
to 29.0% in        the prior fiscal year.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Net
earnings decreased 39.8% to $3,923, compared to $6,513 in the prior fiscal year.
| | - |  | ------------------------------------------------------------------------------------

Company
Performance Measures.The Company measures itself against a number of financial
metrics to assess its performance. The following are the most frequently discussed
metrics, and are discussed in more detail under the heading Fiscal 2005 Compared to
Fiscal 2004.

| |  |  | Same
store sales growth is a measure which indicates  whether  existing          stores are
 maintaining  their market  share.  We define same stores as          those  stores  that
were  open as of the first day of the prior  fiscal          year.  Same store sales
 increased  0.1%.  Same store sales of the ALCO          stores in non-competitive
markets increased 0.6%. Sales in the Duckwall          division were comparatively
strong, with a 2.5% same store increase.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Gross
margin  percentage is a key measure of the  Companys  ability to          maximize
 profit on the purchase and  subsequent  sale of  merchandise,          while  minimizing
 promotional  and  clearance  markdowns,   shrinkage,          damage,  and returns.
 Gross margin percentage is defined as sales less          cost of sales, expressed as a
percentage of sales. Gross margin percent          declined to 32.9% of sales in Fiscal
2005,  compared to 33.2% in Fiscal          2004.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | SG&A
 expense  percentage  is a measure  of the  Companys  ability  to          control  the
 operating  costs it requires  to run the
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------

---

| | business.
 SG&A          expense  percentage  increased to 29.6%  compared to 29.0% in the
prior          fiscal year.
| | ----------------------------------------------------------------------------------------------------------------------

| |  |  | Earnings
 per  share  (EPS)  growth  is an  indicator  of  the  returns          generated  for
the  Companys  stockholders.  EPS declined to $0.88 per          diluted share, compared
to $1.50 per diluted share for the prior fiscal          year.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Results
of Operations.The following table sets forth, for the fiscal years indicated, the
components of the Companys consolidated statements of operations expressed as a
percentage of net sales:

|                                                                               | Fiscal Year Ended
|------------------------------------------------------------------------------ | -----------------
|                                                                               | January 30,
2005 
|Net sales                                                                      |                  
|Cost of sales                                                                  |                  
|                                                                               |                  
|Gross margin                                                                   |                  
|                                                                               |                  
|Selling, general and administrative
      expenses                             |                  
|Depreciation and amortization                                                  |                  
|                                                                               |                  
|Total operating expenses                                                       |                  
|                                                                               |                  
|Income from continuing operations                                              |                  
|Interest expense                                                               |                  
|                                                                               |                  
|Earnings from continuing operations
      before income                        |                  
|taxes and discontinued
      operations                                        |                  
|Income tax expense                                                             |                  
|                                                                               |                  
|Earnings from continuing operations
      before                               |                  
|discontinued operations                                                        |                  
|(Loss) income from discontinued operations,
      
          net of income tax |                  
|                                                                               |                  
|Net earnings                                                                   |                  
|                                                                               |                  

Critical Accounting
Policies

Inventory:As discussed in Note 1(d) to the Consolidated Financial Statements, inventories are
stated at the lower of cost or net realizable value with cost determined using the
last-in, first-out (LIFO) method. The retail inventory method (RIM) used by the
Company is an averaging method that has been widely used in the retail industry. This
method calculates a cost to retail ratio that is applied to the retail value of
inventory to calculate cost inventory and the resulting gross margin. Use of the
RIM method does not eliminate the use of management judgments and estimates, including
markdowns and shrinkage, which significantly impact the ending inventory valuation at
cost and the resulting gross margins. The Company continually evaluates product
categories to determine if markdown action is appropriate, or if a markdown reserve
should be established. The Company recognizes that the use of the RIM will result in
valuing inventories at lower of cost or market if markdowns are currently taken as a
reduction of the retail value of inventories. As of January 30, 2005 and February 1,
2004, the Company had recorded markdowns that had not been taken and which served to
reduce inventories to lower of cost or market by approximately $398,000 and $658,000,
respectively. Management believes that the RIM provides an inventory valuation which
reasonably approximates cost and results in carrying inventory at the lower of cost or
market.

Property
and Equipment:The Companys policy is to capitalize property and equipment if it has a
useful life beyond one year. Major improvements are capitalized, while maintenance
and repairs, which do not extend the useful life of the asset, are expensed as incurred.
The nature and extent of the repair, as well as the relative dollar amount of the
repair in relation to the cost of the asset determine whether the expenditure is
capitalized or expensed.

Impairment
of Long-Lived Assets:The Company considers determination of impairment of long-lived
assets as a critical accounting policy because determination as to whether the
long-lived assets of a store are impaired and, if impaired, the fair value of such
assets requires the use of judgment, particularly as it relates to projecting
whether the sum of expected undiscounted future cash flows for the store over an
extended period of time will equal or exceed the carrying value of such assets.
Management uses the best information available to make the determination; however,
actual future cash flows for the store may vary significantly from the cash flows
projected in conjunction with the impairment assessment. The potential impact
on the financial statements of incorrect judgments regarding impairment of long-lived
assets is that a provision for impairment could be needlessly recorded if
projected future cash flows for a store are significantly under estimated or a
provision for impairment could be deferred until later determined necessary in a future
period if initial projected cash flows are over estimated. See Note 1(l) of Notes to
Consolidated Financial Statements for a description of the Companys accounting policy
for impairment of long-lived assets.

Insurance:The Company considers general insurance cost a critical accounting policy.
Starting with the insurance policy year of June 2003, the Company has a $100,000
deductible and is essentially self insured for workers compensation claims. The
previous deductible was $2,500. For general liability insurance, the deductible was
increased from $5,000 to $50,000. Due

---

to the fact that it takes more than
one year to  determine  the  actual  costs  under  these plans,  these  costs  are
 estimated  based  on the  Companys  historical  loss experience and estimates from the
insurance carriers and consultants.

Income
Taxes:The Companys tax provision and establishment of reserves for potential
tax liabilities involves the use of estimates and professional judgment. The
Company has identified exposures for which they have established a reserve, such as
differences in interpretation of tax laws at the federal, state, and local units of
government. During fiscal year 2004, the Company, based on current information,
analyzed its income tax liability account and determined that it was overaccrued with
respect to certain matters arising in prior years. The Company reversed such overaccrual
of approximately $618,000 during fiscal 2004.

Leases:The Company considers it method of accounting for rent expense to be a critical
accounting policy. During Fiscal 2005, the Company determined that its methods of
accounting for rent were not in accordance with the SECs recent clarification of
what is acceptable under generally accepted accounting principles, even though those
methods of accounting were in line with common industry practices. The Company had
previously started recording rent expense at the time the store opened, and is now
modifying its recognition of rent expense to include the period prior to opening
using a straight-line method. Additionally, the Company determined that in those
instances where the lease includes a rent escalation clause, that the rent was not
being accounted for in accordance with the recent SEC clarification. The Company is now
modifying its practices to handle these in accordance with the SECs recent
clarification. The Company reviewed the impact of these changes on prior years and
determined that it is not material, so prior year financial statements will not be
restated. However, it has recorded a one time after tax charge of $150,000, or $0.03
per diluted share in the fourth quarter of fiscal year 2005 to reflect a cumulative
catch up adjustment.

Fiscal 2005 Compared
to Fiscal 2004

Fiscal
 2005 was a  disappointing  year in every  category  of the Companys key performance
measures. Company revenue goals were not met, and same store sales performance was
unacceptable.  Fiscal year 2005 included a number of one-time  costs and markdowns
 associated  with the  implementation  of programs focused on improving long-term
performance. The Company has outlined a number of initiatives  that address the poor
 performance  of each of the key  performance measures,  with the goal of  improving
 performance  in each  area over the long term.

Net
sales for fiscal 2005  increased $9.3 million or 2.2% to $433.9 million  compared to
$424.5  million for fiscal 2004.  During  fiscal 2005,  the Company  opened 6 ALCO and 3
Duckwall  stores,  all but one of which were in new non-competitive  markets.  Four  ALCO
and three  Duckwall  stores  were  closed, resulting  in a year end total of 266 stores.
 The increase in net sales was due primarily to new stores opened over the last two
fiscal years. Net sales for all stores open the full year in both fiscal 2005 and 2004
(same stores),  increased by $512,000 or 0.1% in fiscal 2005  compared to fiscal  2004.
 Comparable  store sales of the ALCO stores in non-competitive markets increased 0.6%.
Sales in the Duckwall  division  were  comparatively  strong,  with a 2.5%  comparable
 store increase.

Gross
margin for fiscal 2005 increased $2.1 million, or 1.5%, to $142.9 million compared to
$140.7 million in fiscal 2004. As a percentage of net sales, gross margin decreased to
32.9% in fiscal 2005 compared to 33.2% in fiscal 2004. This  decrease  in  the  gross
 margin  percentage  was  attributable  to a less favorable mix of sales and higher
 markdowns,  partially offset by lower shrink. The  gross  margin   percentage   was
 also   unfavorably   impacted  by  higher transportation  costs, as a result of higher
fuel prices. The shift in sales mix partly  reflects the  Companys  decision to expand
the  offerings of consumable products  within its stores.  While  consumables  generally
carry a lower margin than most  other  store  merchandise,  the  Companys  management
 believes  the decision to place greater  emphasis upon  consumables had a positive
impact upon sales and profits during fiscal 2005. The higher  markdowns were primarily in
the fourth  quarter,  and included those resulting from the Companys efforts to reduce
its seasonal inventory carryover.

Selling,
general and administrative expenses increased $5.0 million or 4.1% to $128.4  million in
fiscal 2005  compared to $123.3  million in fiscal 2004. As a percentage of net sales,
selling, general and administrative expenses were 29.6% in fiscal 2005 and 29.0% in
fiscal 2004, due to significantly  higher general  and  medical  insurance  costs,  and
the  one-time  costs of a business advisory service,  the abandonment of a technology
asset,  costs associated with the retirement of the Companys President,  and a lease
accounting charge in the fourth  quarter of the fiscal year.  The largest  impact on SG&A
was  insurance, where rising costs added $2.2 million in additional  expense during
Fiscal 2005. This equates to an additional 0.5% of sales.

Depreciation
and amortization expense decreased $433,000 or 6.1% to $6.7  million  in fiscal  2005
 compared  to $7.1  million in fiscal  2004.  The decrease in  depreciation  and
 amortization  expense was  attributable to store fixtures and equipment  becoming fully
depreciated in the current fiscal year on a large number of ALCO stores that were opened
in fiscal years 1996 and 1997.

Income
from continuing operations decreased $2.5 million, or 24.0%, to $7.8 million in fiscal
2005  compared to $10.3  million in fiscal  2004.  The decrease was a result of SG&A
expenses increasing by more than the amount of the Gross Profit dollars increase. Income
from continuing operations as a percentage of net sales was 1.8% in fiscal 2005 compared
to 2.5% in fiscal 2004.

Interest
 expense  decreased  $156,000,  or 11.3%,  in fiscal  2005 compared to fiscal  2004.  The
 reduction  in interest  expense was due to lower amounts borrowed on the revolver.

---

Income
 taxes were $2.2  million  in fiscal  2005  compared  to $2.7 million in fiscal 2004.
 The  Companys  effective  tax rate was 33.8% in fiscal 2005 and 30.3% in fiscal 2004.
The rate was lower in fiscal 2004 because, during the fourth  quarter of fiscal 2004, the
Company,  based on current  information, analyzed  its  income  tax  liability   account
 and  determined   that  it  was over-accrued with respect to certain matters arising in
prior years. The Company reversed such  over-accrual of $618,000 during 2004.
 Approximately  $200,000 of this adjustment was for previously  unidentified  state tax
credits  relating to prior years,  which the Company  became aware of in the fourth
quarter of fiscal 2004.

Loss
 from  discontinued  operations,  net  of  income  taxes  was $430,000 in fiscal  2005,
 compared to income of  $313,000  in fiscal  2004.  In fiscal  2004, a company  owned
store was closed and the  building was sold.  The gain on sale of the building in the
amount of $406,000 was accounted for as part of  discontinued  operations.  The gain on
sale more than offset the losses from the operations of the eight stores closed in fiscal
2004, resulting in an income from discontinued operations in the amount of $313,000 net
of taxes.

Fiscal 2004 Compared
to Fiscal 2003

Net
sales  for  fiscal  2004  increased $30.3 million or 7.7% to $424.5 million compared to
$394.2 million for fiscal 2003. During fiscal 2004, the Company opened eight ALCO stores,
 seven of which were in new non-competitive markets. Two ALCO and six Duckwall stores
were closed,  resulting in a year end total of 264 stores.  The increase in net sales was
due to new stores opened over the last two fiscal  years.  Net sales for all stores open
the full year in both fiscal 2004 and 2003 (same stores),  increased by $3.9 million or
1.0% in fiscal 2004 compared to fiscal 2003. Comparable store sales of the ALCO stores in
non-competitive markets increased 1.7%. Sales in the Duckwall division were relatively
strong, with a 5.6% comparable store increase.

Gross
margin for fiscal 2004  increased  $9.2 million,  or 7.0%, to $140.7 million compared to
$131.5 million in fiscal 2003. As a percentage of net sales,  gross  margin  decreased
 to 33.2% in fiscal  2004  compared to 33.4% in fiscal 2003. The decrease in the gross
margin  percentage was  attributable to a less  favorable mix of sales and higher
 shrinkage  costs,  partially  offset by slightly lower  markdowns.  The shift in sales
mix partly reflects the Companys decision to expand the offerings of consumable products
within its stores. While consumables  generally  carry a lower margin than most other
store  merchandise, the Companys  management  believes the decision to place greater
 emphasis upon consumables had a positive impact upon sales and profits during fiscal
2004.

Selling,
general and administrative expenses increased $8.5 million or 7.4% to $123.3  million in
fiscal 2004  compared to $114.8  million in fiscal 2003. As a percentage of net sales,
selling, general and administrative expenses were  29.0% in  fiscal  2004 and 29.1% in
fiscal  2003,  primarily  due to lower distribution center,  advertising and remodeling
expenses,  which were partially offset by higher general insurance and store opening
costs.

Depreciation
and amortization expense increased $415,000 or 6.2% to $7.1  million  in fiscal  2004
 compared  to $6.7  million in fiscal  2003.  The increase in depreciation  and
 amortization  expense was attributable to capital expenditures  of $4.3  million  and
 $7.6  million  in  fiscal  2004  and  2003, respectively.

Income
from continuing  operations increased $303,000,  or 3.1%, to $10.3 million in fiscal 2004
 compared to $10.0  million in fiscal 2003.  Income from continuing  operations as a
percentage of net sales was 2.5% in fiscal 2004 compared to 2.6% in fiscal 2003.

Interest
 expense  decreased  $223,000,  or 13.9%,  in fiscal  2004 compared to fiscal  2003.  The
 reduction  in interest  expense was due to lower interest rates and lower amounts
borrowed on the revolver.

Income
 taxes were $2.7  million in fiscal  2004  compared  to $3.1 million in fiscal 2003.  The
 Companys  effective  tax rate was 30.3% in fiscal 2004 and 36.7% in fiscal 2003. The
rate was lower in fiscal 2004 because, during the fourth  quarter of fiscal 2004, the
Company,  based on current  information, analyzed  its  income  tax  liability   account
 and  determined   that  it  was over-accrued with respect to certain matters arising in
prior years. The Company reversed such  over-accrual of $618,000 during 2004.
 Approximately  $200,000 of this adjustment was for previously  unidentified  state tax
credits  relating to prior years,  which the Company  became aware of in the fourth
quarter of fiscal 2004.

Income
 from  discontinued  operations,  net of  income  taxes was $313,000 in fiscal 2004,
 compared to $57,000 in fiscal 2003.  In fiscal 2004, a company  owned store was closed
and the building  was sold.  The gain on sale of the building in the amount of $406,000
was accounted for as part of discontinued operations.  The gain on sale more than offset
the losses from the operations of the eight stores closed in fiscal 2004, resulting in an
income from discontinued operations in the amount of $313,000 net of taxes.

---

Seasonality and
Quarterly Results

The
 following  table sets  forth the  Companys  net sales,  gross margin,  income from
operations,  and net earnings during each quarter of Fiscal 2005 and 2004.

|            |  | First
      Quarter                 | Second
      Quarter | Third
      Quarter | Fourth
      Quarter
|----------- |  | ----------------------------------- | -------------------- | ------------------- | --------------------
|            |  | (dollars in millions)              
|Fiscal 2005 |  | Net Sales                           |                      | $101.6              |                     
|            |  | Gross Margin                        |                      | 33.7                |                     
|            |  | Earnings from continuing operations |                      | 0.7                 |                     
|            |  | Net Earnings (loss)                 |                      | 0.7                 |                     
|            |  |                                     |                      |                     |                     
|Fiscal 2004 |  | Net Sales                           |                      | $  97.9             |                     
|            |  | Gross Margin                        |                      | 32.7                |                     
|            |  | Earnings from continuing operations |                      | 0.6                 |                     
|            |  | Net Earnings                        |                      | 0.6                 |                     

See
Note 10 of Notes to Consolidated Financial Statements for quarterly earnings per share
information.

The
 Companys  business is subject to seasonal  fluctuations.  The Companys  highest  sales
levels occur in the fourth  quarter of its fiscal year which includes the Christmas
 holiday selling season.  The Companys  results of operations in any one quarter are not
 necessarily  indicative of the results of operations  that can be  expected  for any
other  quarter or for the full fiscal year.  The Companys  results of operations  may
also  fluctuate from quarter to quarter as a result of the amount and timing of sales
 contributed by new stores and the  integration  of the new stores into the  operations
of the Company,  as well as other  factors.  The  addition  of a large  number  of new
 stores  can, therefore, significantly affect the quarterly results of operations. Also,
refer to  Impact of Change in  Accounting  Principle  and Note 10 to the  Consolidated
Financial  Statements regarding the impact of the accounting change on quarterly results.

Inflation

Management
does not believe that its merchandising  operations have been materially  affected by
inflation over the past few years. The Company will continue  to  monitor  costs,  take
 advantage  of  vendor  incentive  programs, selectively buy from competitive  vendors
and adjust merchandise prices based on market conditions.

The
Companys operating expenses have been impacted by increases in general and medical
 insurance,  as well as  competitive  pressures  in wages in selected  markets.  See
 additional  discussion  of  wages  in  the  Government Regulation section.

The
increase in the price of oil  adversely  affects the  Companys transportation  costs,
both on inbound  shipments to the Companys  distribution center, and on outbound
shipments of merchandise to the stores. The Company also believes  the higher  retail
price of gasoline  adversely  affects the amount of discretionary spending dollars our
customers have to spend at our stores.

Liquidity and Capital
Resources

At
the end of Fiscal  2005,  working  capital  (defined  as current assets less current
 liabilities) was $95.4 million compared to $89.5 million at the end of fiscal 2004 and
$93.4 million at the end of fiscal 2003.

The
 Companys   primary  sources  of  funds  are  cash  flow  from operations,  borrowings
under its revolving loan credit  facility,  vendor trade credit financing and lease
financing. In fiscal years 2005 and 2003, the Company completed a  sale-leaseback  of a
number of its owned stores.  The proceeds from these  transactions  amounted to $1.7
million and $1.3 million,  in fiscal years 2005 and 2003,  respectively.  No
sale-leaseback  transactions were completed in Fiscal 2004.

Cash
provided by operating  activities  aggregated $5.8 million,  $16.4 million,  and $5.4
million,  in Fiscal 2005,  2004 and 2003,  respectively.  The decrease  in cash  provided
in Fiscal  2005  relative  to fiscal  2004  resulted primarily from a decrease in
accounts payable.  The increase in cash provided in fiscal 2004 relative to fiscal 2003
resulted  primarily from a smaller  increase in inventory an a larger increase in
accounts payable.

The
Company uses its  revolving  loan credit  facility and vendor trade credit  financing to
fund the build up of  inventories  periodically  during the year  for  its  peak  selling
  seasons  and  to  meet  other   short-term  cash requirements.  The revolving loan
credit facility  provides up to $70 million of financing in the form of notes payable and
letters of credit. The loan agreement expires in April  2006.  The  revolving  loan note
 payable and letter of credit balance at January 30, 2005 was $7.6 million,  resulting in
an available line of credit at that date of $62.4  million.  Loan  advances are secured
by a security interest  in the  Companys  inventory.

---

The  loan  agreement  contains
 various restrictions  that are  applicable  when  outstanding  borrowings  exceed  $42.5
million.  Short-term trade credit  represents a significant  source of financing for
inventory to the Company.  Trade credit arises from the  willingness  of the Companys
vendors to grant payment terms for inventory purchases.

In
Fiscal 2005,  the Company made net cash  payments on its  revolving credit facility of
$935,000 and made cash payments of $1.3 million to reduce its long-term debt and capital
lease obligations, and repurchased $80,000 of Company stock. The  Company  received
 $1.3  million in proceeds  from the  exercise of outstanding stock options. In Fiscal
2004, the Company made net cash payments on its  revolving  credit  facility of $12.5
million and made cash payments of $1.2 million  to  reduce  its  long-term  debt and
 capital  lease  obligations,  and repurchased $658,000 of Company stock. The Company
received $868,000 in proceeds from the exercise of outstanding stock options. In fiscal
2003, the Company made net cash  payments on its  revolving  credit  facility of $654,000
and made cash payments  of $1.2  million  to  reduce  its  long-term  debt and  capital
 lease obligations.  The Company received $1.2 million in proceeds from the exercise of
outstanding  stock  options.  The  Company  executed  operating  leases  for  22
additional  stores  during  the three year  period  ending in Fiscal  2005.  The
Companys  long-range  plan  assumes  growth in the  number of stores in smaller markets
where there is less  competition,  and, in accordance  with this plan, 6 new ALCO and 3
new  Duckwall  stores  were opened in Fiscal 2005 and 8 to 10 new ALCO stores are
expected to be opened in fiscal 2006. The Company  believes that with the $70 million
line of credit, sufficient capital is available to fund the Companys planned expansion.

Cash
used for  acquisition  of property  and  equipment in Fiscal 2005, 2004  and  2003
 totaled  $6.5  million,   $4.3   million,   and  $7.6  million, respectively. A
sale-leaseback of store buildings was completed in the amount of $1.7 million and $1.3
million in fiscal 2005 and 2003,  respectively.  In Fiscal 2005,  company owned  surplus
land was sold for $315,000,  and in Fiscal 2004, a company owned store was closed and the
building was sold for $1.2 million.  This resulted in net cash used for  acquisition  of
property and  equipment in Fiscal 2005,  2004,  and  2003  of  $4.6  million,  $3.1
 million,  and  $6.3  million, respectively.   Anticipated  cash  payments  for
 acquisition  of  property  and equipment in fiscal 2006,  principally  for store
 buildings and  fixtures,  are $15.5 million.

During
fiscal 1999, the Companys Board of Directors approved a plan to repurchase  up to
411,000  shares of the  Companys  Common  Stock  (the  Stock Repurchase  Program).
 During  fiscal 2000,  the  Companys  Board of Directors approved the repurchase of an
additional 1,000,000 shares. Purchases pursuant to the Stock Repurchase Program are to be
made from time to time in the open market or directly from stockholders at prevailing
market prices.  The Stock Repurchase Program has been funded and is  anticipated  to be
funded by cash generated from operations and borrowing under the Companys credit
facility.  As of January 30, 2005, the Company had purchased and retired 1,084,600 shares
of Common Stock for $8.9 million, which represents 21% of its outstanding shares.

The
following table  summarizes the Companys  significant  contractual obligations  payable
as of January 30, 2005 (in  thousands).  Payments due under the  revolving  loan credit
 facility and  long-term  debt  represent  principle payments only.

|                                   | Payments due by Period
|---------------------------------- | ----------------------
|Contractual Obligations            | Total                 
|Revolving Loan Credit Facility     |                       
|Capital Lease Obligations          |                       
|Operating Leases                   |                       
|Contingent Rentals                 |                       
|                                   |                       
|Total contractual cash obligations |                       
|                                   |                       

Subsequent Events

On
 March  17,  2005,  the  Company  announced  that,  as  part  of its initiatives designed
to improve performance of the Company for its shareholders, it will be closing 8 ALCO and
12 Duckwall  stores that do not meet the Companys minimum return on investment
threshold.  The process to close these stores began immediately,  and the Company expects
it will take approximately three months to complete.  The Company has engaged Gordon
Brother Retail Partners, LLC to assist in the orderly  inventory  liquidation  and to
help  minimize  the total cost of closing these stores.  The Companys primary lender,
 Fleet Retail Group,  Inc., has consented to these  closings.  The Company  estimates
that pursuant to these store closings,  it will liquidate  approximately $6.5 million of
inventory.  Of the stores being closed,  the Company owns the property on which two ALCO
stores are located and leases the properties  for the remaining 18 stores.  The company
anticipates that the aggregate cost to close these stores,  before income taxes, will be
in the range of $3.8 to $4.8 million.  The majority of that expense will be  recorded in
the first and second  quarters  of Fiscal Year 2006.  The twenty stores that are  closing
 produced  gross sales of $19.9  million in Fiscal Year 2005, and employed approximately
260 associates.

---

On
April 19, 2005, the Company  reached an agreement with a significant stockholder  to
 repurchase  399,362  shares of the  Companys  Common Stock for approximately $7.2
million. These shares will be retired. The Board of Directors approved  this  transaction
 and  increased the number of shares the Company was authorized to repurchase by 399,362.

Expansion Plans

The
continued  growth of the Company is dependent,  in large part, upon the Companys
 ability to open and operate new stores on a timely and profitable basis.  The Company
plans to open eight to ten ALCO stores in the current fiscal year.  While the Company
 believes that adequate sites are currently  available, the rate of new store  openings
 is subject to  various  contingencies,  many of which  are  beyond  the  Companys
 control.  These  contingencies  include  the availability  of  acceptable  communities
 for store  locations,  the  Companys ability to secure  suitable  store sites on a
timely  basis and on  satisfactory terms, the Companys ability to hire, train and retain
qualified personnel,  the availability of adequate capital resources and the successful
integration of new stores into existing operations. There can be no assurance that the
Company will be able to continue to successfully  identify and obtain new store sites or
that once obtained, the new stores will achieve satisfactory sales or profitability.

Impact of Change in
Accounting Principle

Effective
January 1, 2003, the Company adopted SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities.SFAS No. 146 addresses financial accounting and reporting
for costs associated with exit or disposal activities. The adoption of this statement
had the effect of delaying when the Company records liabilities associated with store
closures.

The
Company adopted Emerging Issues Task Force Issue 02-16, Accounting by a Customer
(including a Reseller) for Certain Consideration Received from a Vendor,(EITF
02-16). EITF 02-16 provides guidance on the income statement classification of
amounts received by a customer, including a reseller (including reimbursements
for expenses such as cooperative advertising), for transactions entered into after
December 31, 2002, and limited guidance regarding timing of recognition for volume
rebates, for transactions entered into after November 21, 2002. The adoption of
EITF 02-16 did not have a significant impact on the Companys financial statements
for the year ended January 30, 2005.

New Accounting Standard

In
December 2004, the Financial Accounting Standards Board adopted SFAS No. 123(R),
 Share-Based Payment,  effective in the first quarter of fiscal 2007 for the Company.
 SFAS No. 123(R)  supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. Generally, the approach in SFAS No. 123(R) is similar to the  approach
 described  in SFAS  No.  123.  However,  123(R)  requires  all share-based  payments to
employees,  including grants of employee stock options, to be recognized in the income
 statement based on their fair values.  Pro forma disclosure is no longer an
 alternative.  Accordingly,  the adoption of 123(R)s fair value method will have an
impact on our results of operations.  The Company expects to adopt 123(R)  during the
first quarter of fiscal 2007,  however,  the Company has not yet determined the manner of
adoption.

CAUTIONARY STATEMENT
CONCERNING FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS OF
                                    OPERATIONS, FINANCIAL CONDITION OR BUSINESS

Certain
 statements  contained in this Annual  Report on Form 10-K that are  not  statements  of
 historical   fact  may   constitute   forward-looking statements  within the  meaning
 of  Section  21E of the  Exchange  Act.  These statements are subject to risks and
uncertainties,  as described below. Examples of forward-looking  statements include,  but
are not limited to: (i) projections of revenues,  income or loss, earnings or loss per
share, capital  expenditures, store  openings,  store closings,  payment or non-payment
of dividends,  capital structure and other financial items,  (ii) statements of plans and
objectives of the Companys  management or Board of Directors,  including  plans or
objectives relating to  inventory,  store  development,  marketing,  competition,
 business strategy, store environment,  merchandising,  purchasing, pricing,
distribution, transportation,  store locations and information  systems,  (iii)
 statements of future economic performance,  and (iv) statements of assumptions
 underlying the statements  described in (i),  (ii) and (iii).  Forward-looking
 statements  can often  be  identified  by  the  use  of  forward-looking  terminology,
 such  as believes,  expects, may, will, should,  could,  intends,
 plans, estimates,   projects  or  anticipates,   variations  thereof  or
 similar expressions.

Forward-looking
 statements are not guarantees of future performance or results. They involve risks,
uncertainties and assumptions. The Companys future results of operations,  financial
 condition and business  operations may differ materially  from the  forward-looking
 statements or the historical  information stated in this  Annual  Report on Form  10-K.
 Stockholders  and  investors  are cautioned not to put undue reliance on any
forward-looking statement.

There
are a number of factors and uncertainties that could cause actual results of  operations,
 financial  condition  or business  contemplated  by the forward-looking  statements  to
differ  materially  from those  discussed in the forward-looking statements made herein
or elsewhere orally or in writing, by, or on behalf of, the  Company,  including  those
 factors  described  below.  Other factors not identified herein could also have such an
effect. Factors that could cause  actual  results  to  differ   materially  from  those
 discussed  in  the forward-looking  statements and from historical information include,
but are not limited to, those factors  described below:

| |  |  | The
Companys  ability to open and operate new stores  effectively  and  efficiently  on a
profitable  basis.
| | - |  | -------------------------------------------------------------------------------------------------------------

---

| |  |  | The
Companys  ability to locate its ALCO stores in smaller  retail markets where no
competing full-line          discount retail store is located within the primary trade
area.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The
success of deterring  another  competitor  from  entering the market after locating an
ALCO store there.
| | - |  | ------------------------------------------------------------------------------------------------------------

| |  |  | Material
 increases  in the cost of  compliance with any applicable law or governmental
regulation.
| | - |  | ---------------------------------------------------------------------------------------------------

| |  |  | Loss
of key employees such as the President, Bruce C. Dale, and the other executive officers
of the          Company.
| | - |  | ---------------------------------------------------------------------------------------------------------------------

| |  |  | The
Companys ability to utilize technology upgrades to efficiently and          effectively
monitor its inventory levels.
| | - |  | --------------------------------------------------------------------------------------------------------------------------

| |  |  | The
Companys ability to react to consumer needs and trends on a timely basis.
| | - |  | ------------------------------------------------------------------------------

| |  |  | General
 economic  conditions of the small  communities in which the Companys stores are located.
| | - |  | --------------------------------------------------------------------------------------------------

ITEM 7A.
          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The
 Company  is  subject to market  risk from  exposure  to changes in interest rates based
on its financing, investing and cash management activities. The Company  maintains a
secured  line of credit at variable  interest  rates to meet the  short-term  needs of
its  expansion  program  and  seasonal  inventory increases.  On April 15, 2002, the
Company  replaced the existing line of credit with a new line of credit with Fleet Retail
 Finance Inc.  that expires in April 2006. The credit line available is $70,000,000,
which carries a variable rate of interest.

The
 Companys  borrowing  arrangement  contains no  limitation  on the change in the
variable interest rate paid by the Company. Based on the Companys average borrowing
outstanding during the year of approximately  $9,281,000, a 1% change  either up or down
in the LIBOR  rate would have  changed  the  Companys interest expense by approximately
$93,000.

ITEM 8.
             FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Financial
Statement Schedules:

| | No
financial statement schedules are included as they                            are not
applicable to the Company.
| | -------------------------------------------------------------------------------------------------------------------

---

Report of
Independent Registered Public Accounting Firm

The Board of Directors and
Stockholders Duckwall-ALCO Stores, Inc.:

We have audited the  accompanying
 consolidated  balance sheets of Duckwall-ALCO Stores,  Inc. and subsidiaries (the
Company) as of January 30, 2005 and February 1, 2004, and the related  consolidated
 statements of operations,  stockholders equity,  and cash  flows for each of the years
in the  three-year  period  ended January 30, 2005. These consolidated financial
statements are the responsibility of the  Companys  management.  Our  responsibility  is
to express an opinion on these  consolidated  financial  statements based on our audits.

We conducted our audits  in
 accordance  with the  standards  of the  Public  Company  Accounting Oversight  Board
 (United  States).  Those  standards  require  that we plan and perform the audit to
obtain  reasonable  assurance  about  whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis,  evidence
 supporting  the amounts and  disclosures in the financial statements.  An audit also
includes assessing the accounting principles used and significant  estimates  made by
 management,  as well as evaluating  the overall financial  statement  presentation.   We
 believe  that  our  audits  provide  a reasonable basis for our opinion.

In our opinion,  the  consolidated
 financial statements  referred to above  present  fairly,  in all material  respects,
 the financial position of Duckwall-ALCO  Stores, Inc. and subsidiaries as of January 30,
2005 and  February 1, 2004,  and the results of their  operations  and their cash flows
for each of the years in the three-year period ended January 30, 2005 in conformity with
U.S. generally accepted accounting principles.

/s/ KPMG LLP

Wichita, Kansas March 30, 2005,
 except for the second paragraph     of note 13 which is as of April    20, 2005

---

DUCKWALL-ALCO
STORES, INC. AND SUBSIDIARIES

Consolidated Balance
Sheets

January 30, 2005 and
February 1, 2004

(Dollars in thousands)

|Assets                                         | 2005 | 2004      
|---------------------------------------------- | ---- | ----------
|Current assets:                                |      |           
|Cash and cash equivalents                      |      | $    1,200
|Receivables                                    |      | 1,734     
|Inventories (note 2)                           |      | 129,486   
|Prepaid expenses                               |      | 2,644     
|                                               |      |           
|Total current assets                           |      | 135,064   
|                                               |      |           
|Property and equipment, at cost:               |     
|Land and land improvements                     |      | 2,313     
|Buildings and building improvements            |      | 16,173    
|Furniture, fixtures, and equipment             |      | 52,692    
|Transportation equipment                       |      | 2,908     
|Leasehold improvements                         |      | 13,788    
|Construction work in progress                  |      | 134       
|                                               |      |           
|Total property and equipment                   |      | 88,008    
|Less accumulated depreciation and amortization |      | 63,520    
|                                               |      |           
|Net property and equipment                     |      | 24,488    
|                                               |      |           
|Property under capital leases (note 5)         |      | 18,228    
|Less accumulated amortization                  |      | 15,682    
|                                               |      |           
|Net property under capital leases              |      | 2,546     
|                                               |      |           
|Other assets                                   |      | 89        
|Deferred income taxes (note 6)                 |      | 1,350     
|                                               |      |           
|                                               |      | $163,537  
|                                               |      |           

See accompanying notes to
consolidated financial statements.

---

|Liabilities and Stockholders Equity                          | 2005 | 2004       
|------------------------------------------------------------- | ---- | -----------
|Current liabilities:                                          |      |            
|Current maturities of long-term debt (note 3)                 |      | $         
|Current maturities of capital lease obligations (note 5)      |      | 856        
|Accounts payable                                              |      | 22,234     
|Income taxes payable                                          |      | 351        
|Accrued salaries and commissions                              |      | 4,728      
|Accrued taxes other than income                               |      | 4,367      
|Other current liabilities                                     |      | 6,183      
|Deferred income taxes (note 6)                                |      | 914        
|                                                              |      |            
|Total current liabilities                                     |      | 39,633     
|Notes payable under revolving loan credit facility (note 3)   |      | 4,023      
|Capital lease obligations, less current maturities (note 5)   |      | 3,726      
|Other noncurrent liabilities                                  |      | 1,479      
|Deferred revenue                                              |      |           
|                                                              |      |            
|Total liabilities                                             |      | 48,861     
|                                                              |      |            
|Stockholders equity (notes 7 and 8):                         |     
|Common stock, $0.0001 par value. Authorized 20,000,000 shares |     
|in 2005 and 2004; issued and outstanding 4,475,079 and        |     
|4,299,816 shares in 2005 and 2004, respectively               |      | 1          
|Additional paid-in capital                                    |      | 50,889     
|Retained earnings                                             |      | 63,786     
|                                                              |      |            
|Total stockholders equity                                    |      | 114,676    
|Commitments (note 5)                                          |     
|                                                              |      |            
|                                                              |      | $163,537   
|                                                              |      |            

---

DUCKWALL-ALCO
STORES, INC. AND SUBSIDIARIES

Consolidated Statements
of Operations

Fiscal years
ended January 30, 2005; February 1, 2004; and February 2, 2003

(Dollars in thousands,
except per share amounts)

|                                                           | 2005 | 2004         | 2003
|---------------------------------------------------------- | ---- | ------------ | ----
|Net sales                                                  |      | $ 433,854    |     
|Cost of sales                                              |      | 290,989      |     
|                                                           |      |              |     
|Gross
      margin                                         |      | 142,865      |     
|                                                           |      |              |     
|Selling, general, and administrative (notes 4
      and 5) |      | 128,351      |     
|Depreciation and amortization                              |      | 6,708        |     
|                                                           |      |              |     
|Total
      operating expenses                             |      | 135,059      |     
|                                                           |      |              |     
|Income
      from continuing operations                    |      | 7,806        |     
|                                                           |      |              |     
|Interest expense (notes 3 and 5)                           |      | 1,230        |     
|                                                           |      |              |     
|Earnings
      from continuing operations before           |     
|income
      taxes and discontinued operations             |      | 6,576        |     
|                                                           |      |              |     
|Income tax expense (note 6)                                |      | 2,223        |     
|                                                           |      |              |     
|Earnings
      from continuing operations before           |     
|discontinued
      operations                              |      | 4,353        |     
|                                                           |     
|Income (loss) from discontinued operations, net
      of   |     
|income tax expense
      (benefit) of $(219), $136, and    |     
|$38 in 2005, 2004
      and 2003, respectively             |      | (430         | )   
|                                                           |      |              |     
|Net
      earnings                                         |      | $     3,923  |     
|                                                           |      |              |     
|Earnings (loss) per share:                                 |     
|Basic (note 9):                                            |     
|Earnings
      before discontinued operations              |      | $       0.99 |     
|Discontinued
      operations                              |      | (0.10        | )   
|                                                           |      |              |     
|Net
      earnings                                         |      | $       0.89 |     
|                                                           |      |              |     
|Earnings (loss) per share:                                 |     
|Diluted (note 9):                                          |     
|Earnings
      before discontinued operations              |      | $       0.98 |     
|Discontinued
      operations                              |      | (0.10        | )   
|                                                           |      |              |     
|Net
      earnings                                         |      | $       0.88 |     
|                                                           |      |              |     

See accompanying notes to
consolidated financial statements.

---

DUCKWALL-ALCO
STORES, INC. AND SUBSIDIARIES

Consolidated Statements
of Stockholders Equity

Fiscal years ended January 30, 2005; February 1, 2004; and                                        February 2, 2003

(Dollars in thousands)

|                                          | Common 
      stock 
      shares 
      outstanding | Common 
      stock | Additional 
      paid-in 
      capital | Retained 
      earnings | Accumulated 
      other 
      comprehensive 
      income (loss) | Total 
      stockholders 
      equity
|----------------------------------------- | ---------------------------------------------------- | ------------------- | ---------------------------------------- | ------------------------ | ------------------------------------------------------------------ | ----------------------------------------
|Balance, February 3, 2002                 |                                                      | 4,149,599           |                                          | $    1                   |                                                                    | 47,609                                  
|                                          |                                                     
|Net earnings for the year ended           |                                                     
|February 2, 2003                          |                                                      |                    |                                          |                         |                                                                    |                                        
|Amortization of cumulative effect         |                                                     
|adjustment                                |                                                      |                    |                                          |                         |                                                                    |                                        
|                                          |                                                      |                     |                                          |                          |                                                                    |                                         
|Comprehensive
      income                |                                                      |                     |                                          |                          |                                                                    |                                         
|                                          |                                                      |                     |                                          |                          |                                                                    |                                         
|Options exercised to purchase shares      |                                                      | 110,958             |                                          |                         |                                                                    | 1,150                                   
|                                          |                                                      |                     |                                          |                          |                                                                    |                                         
|                                          |                                                      |                     |                                          |                          |                                                                    |                                         
|Balance, February 2, 2003                 |                                                      | 4,260,557           |                                          | 1                        |                                                                    | 48,759                                  
|                                          |                                                     
|Net earnings for the year ended           |                                                     
|February 1, 2004                          |                                                      |                    |                                          |                         |                                                                    |                                        
|Repurchase and retirement of              |                                                     
|common shares                             |                                                      | (69,300             | )                                        |                         |                                                                    | (658                                    
|Income tax benefit related to exercise of |                                                     
|stock options                             |                                                      |                    |                                          |                         |                                                                    | 360                                     
|Options exercised to purchase shares      |                                                      | 108,559             |                                          |                         |                                                                    | 868                                     
|                                          |                                                      |                     |                                          |                          |                                                                    |                                         
|Balance, February 1, 2004                 |                                                      | 4,299,816           |                                          | 1                        |                                                                    | 49,329                                  
|                                          |                                                     
|Net earnings for the year ended           |                                                     
|January 30, 2005                          |                                                      |                    |                                          |                         |                                                                    |                                        
|Repurchase and retirement of              |                                                     
|common shares                             |                                                      | (5,000              | )                                        |                         |                                                                    | (80                                     
|Income tax benefit related to exercise of |                                                     
|stock options                             |                                                      |                    |                                          |                         |                                                                    | 375                                     
|Options exercised to purchase shares      |                                                      | 180,263             |                                          |                         |                                                                    | 1,265                                   
|                                          |                                                      |                     |                                          |                          |                                                                    |                                         
|                                          |                                                      |                     |                                          |                          |                                                                    |                                         
|Balance, January 30, 2005                 |                                                      | 4,475,079           |                                          | $    1                   |                                                                    | 50,889                                  
|                                          |                                                      |                     |                                          |                          |                                                                    |                                         

See accompanying notes to
consolidated financial statements.

---

DUCKWALL-ALCO
STORES, INC. AND SUBSIDIARIES

Consolidated Statements
of Cash Flows

Fiscal years
ended January 30, 2005;                               February 1, 2004; and February 2,
2003

(Dollars in thousands)

|                                                              | 2005 | 2004     | 2003
|------------------------------------------------------------- | ---- | -------- | ----
|Cash flows from operating activities:                         |      |          |     
|Net earnings                                                  |      | $ 3,923  |     
|Adjustments to reconcile
      net earnings to net cash       |     
|provided
      by operating activities:                       |     
|Depreciation
      and amortization                           |      | 6,804    |     
|Amortization
      of debt financing costs                    |      | 75       |     
|Deferred
      income taxes                                   |      | (1,071   | )   
|Loss
      (gain) on disposition or impairment of             |     
|property
      and equipment                                  |      | 572      |     
|Decrease
      (increase) in receivables                      |      | (213     | )   
|Decrease
      (increase) in inventories                      |      | 2,175    |     
|Decrease
      (increase) in prepaid expenses                 |      | (456     | )   
|Increase
      (decrease) in accounts payable                 |      | (5,565   | )   
|Increase
      (decrease) in income taxes payable             |      | (1,218   | )   
|Increase
      (decrease) in accrued salaries and commissions |      | (747     | )   
|Increase
      (decrease) in accrued taxes other than income  |      | (129     | )   
|Increase
      in other liabilities                           |      | 2,039    |     
|Increase
      (decrease) in deferred revenue                 |      | (419     | )   
|                                                              |      |          |     
|Net
      cash provided by operating activities               |      | 5,770    |     
|                                                              |      |          |     
|Cash flows from investing activities:                         |     
|Proceeds from sale
      of property and equipment            |      | 1,977    |     
|Acquisition of:                                               |     
|Buildings                                                     |      | (346     | )   
|Fixtures,
      equipment, and leasehold improvements         |      | (6,199   | )   
|                                                              |      |          |     
|Net
      cash used in investing activities                   |      | (4,568   | )   
|                                                              |      |          |     
|Cash flows from financing activities:                         |     
|Decrease in notes
      payable under revolving loan          |     
|credit
      facility                                         |      | (935     | )   
|Net borrowings under
      revolving loan credit agreement    |      |         |     
|Proceeds from exercise
      of outstanding stock options     |      | 1,265    |     
|Repurchase of stock                                           |      | (80      | )   
|Principal payments
      on long-term debt                    |      | (533     | )   
|Principal payments
      under capital lease obligations      |      | (803     | )   
|Debt issuance costs                                           |      |         |     
|                                                              |      |          |     
|Net
      cash used in financing activities                   |      | (1,086   | )   
|                                                              |      |          |     
|Net
      increase (decrease) in cash and cash equivalents    |      | 116      |     
|                                                              |      |          |     
|Cash and cash equivalents at beginning of year                |      | 1,084    |     
|                                                              |      |          |     
|Cash and cash equivalents at end of year                      |      | $ 1,200  |     
|                                                              |      |          |     
|Supplemental disclosure of noncash activity:                  |     
|Tax benefit related
      to stock options exercised          |      | $    375 |     

See accompanying notes to
consolidated financial statements.

---

DUCKWALL-ALCO
STORES, INC. AND SUBSIDIARIES

Notes to Consolidated
Financial Statements

January 30, 2005, and
February 1, 2004, and February 2, 2003

(Dollars in thousands,
except per share amounts)

|(1) |  | Summary
of Significant Accounting Policies
|--- |  | ------------------------------------------

| | (a) |  | Nature
of Business
| | --- |  | ------------------

| | Duckwall-ALCO
Stores, Inc. and subsidiaries (the Company) is               engaged in the business of
retailing general merchandise               throughout the central portion of the United
States of America               through discount department and variety store outlets.
Merchandise               is purchased for resale from many vendors, and transactions
with               individual vendors and customers do not represent a significant
              portion of total purchases and sales.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) |  | Principles
of Consolidation
| | --- |  | ---------------------------

| | The
consolidated financial statements include the accounts of the               Company and
its wholly owned subsidiaries. All significant               intercompany account
balances have been eliminated in               consolidation.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) |  | Basis
of Presentation
| | --- |  | ---------------------

| | The
Companys fiscal year ends on the Sunday nearest to January               31. Fiscal
2005, 2004, and 2003 each consists of 52 weeks.
| | ----------------------------------------------------------------------------------------------------------------------------------------

| | (d) |  | Inventories
| | --- |  | -----------

| | Store
inventories are stated at the lower of cost or net               realizable value as
estimated by the retail inventory method.               Warehouse inventories are stated
at the lower of cost or net               realizable value. The Company utilizes the
last-in, first-out               (LIFO) method of determining cost of store and warehouse
              inventories. The Company considers payments from vendors (i.e.
              vendor rebates and incentives) to be reductions in the cost of
              inventory unless the payments are for specific, incremental,
              identifiable costs incurred to sell the vendors products or
              services, in which case they are treated as a reduction of the
              related costs.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) |  | Property
and Equipment
| | --- |  | ----------------------

| | Depreciation
is computed on a straight-line basis over the               estimated useful lives of the
assets. Amortization of capital               leases is computed on a straight-line basis
over the terms of the               lease agreements. Leasehold improvements are
amortized on a               straight-line basis over the lesser of the remaining lease
term,               or 10 years, unless the cost of the improvement is considered
              major and the lease is within three years of its remaining term,
              in which case one renewal term of the lease is considered.
              Estimated useful lives are as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Buildings                          |  | 25 years   | 
|---------------------------------- |  | ---------- | 
|Building improvements              |  | 10 years   | 
|Coolers and freezers               |  | 15 years   | 
|Furniture, fixtures, and equipment |  | 3-8 years  | 
|Transportation equipment           |  | 3-5 years  | 
|Leasehold improvements             |  | 2-10 years | 

| | Major
improvements are capitalized, while maintenance and repairs               that do not
extend the useful life of the asset are charged to               expense as incurred.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| | The
Company has sold and leased back certain stores (land and               buildings). The
net proceeds from the sale-leaseback transactions               amounted to approximately
$1,660, $0, and $1,316 for fiscal 2005,               2004, and 2003, respectively. If a
gain results from the               sale-leaseback transaction, such gains are deferred
and are               included within other noncurrent liabilities and are being
              amortized over the term of the related leases (15 - 20 years).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (f) |  | Income
Taxes
| | --- |  | ------------

| | The
Company accounts for income taxes under the asset and               liability method.
Deferred tax assets and liabilities are               recognized for the future tax
consequences attributable to               differences between the financial statement
carrying amounts of               existing assets and liabilities and their respective
tax bases and               operating loss and tax credit carryforwards. Deferred tax
assets               and liabilities are measured using enacted tax rates expected to
              apply to taxable income in the years in which those temporary
              differences are expected to be recovered or settled. The effect on
              deferred tax assets and liabilities of a change in tax rates is
              recognized in income in the period that includes the enactment
              date. The Company reflects changes in estimates related to prior
              period income taxes as a component of current period income tax
              expense.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (g) |  | Net
Sales
| | --- |  | ---------

| | Sales
are recorded in the period of sale. Sales returns, which are               not material,
are recorded in the period of return as a reduction               of sales.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (h) |  | Recent
Accounting Pronouncements
| | --- |  | --------------------------------

| | Effective January 1, 2003, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 146, Accounting for Costs
Associated with Exit or Disposal Activities.SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or
disposal activities. The adoption of this statement had the effect
of delaying when the Company records liabilities associated with
store closures (see note 1(m)).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company adopted Emerging Issues Task Force (EITF) Issue 02-16,
Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor.EITF Issue 02-16 provides
guidance on the income statement classification of amounts received
by a customer, including a reseller (including reimbursements for
expenses such as cooperative advertising), for transactions entered
into after December 31, 2002 and limited guidance regarding timing
of recognition for volume rebates for transactions entered into
after November 21, 2002. The adoption of EITF Issue 02-16 did not
have a significant impact on the Companys financial statements for
the year ended January 30, 2005.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) |  | Net
Earnings Per Share
| | --- |  | ----------------------

| | Basic
net earnings per share is computed by dividing net earnings               by the weighted
average number of shares outstanding. Diluted net               earnings per share
reflects the potential dilution that could               occur if contracts to issue
securities (such as stock options)               were exercised. See note 9.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (j) |  | Consolidated
Statements of Cash Flows
| | --- |  | -------------------------------------

| | For
purposes of the consolidated statements of cash flows, the               Company
considers cash and cash equivalents to include currency on               hand and money
market funds. During fiscal 2005, 2004, and 2003,               the following amounts
were paid for interest and income taxes:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|                                              | 2005 | 2004    | 2003
|--------------------------------------------- | ---- | ------- | ----
|Interest, excluding interest on               |      |         |     
|capital lease obligations
      and           |     
|amortization of
      debt financing          |     
|costs (net of capitalized                     |     
|interest of $16
      in fiscal 2005, $16     |     
|in fiscal 2004,
      and $31 in fiscal 2003) |      | $   648 |     
|Income taxes                                  |      | 3,991   |     

| | (k) |  | Use
of Estimates
| | --- |  | ----------------

| | Management
of the Company has made certain estimates and               assumptions in the reporting
of assets and liabilities to prepare               these consolidated financial
statements in conformity with               accounting principles generally accepted in
the United States of               America. Actual results could differ from those
estimates.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (l) |  | Long-lived
Assets
| | --- |  | -----------------

| | Long-lived
assets are reviewed for impairment whenever events or               changes in
circumstances indicate that the carrying amount of an               asset may not be
recoverable. Recoverability of assets to be held               and used is measured by a
comparison of the carrying amount of an               asset to estimated future net cash
flows expected to be generated               by the asset. If such assets are considered
to be impaired, the               impairment to be recognized is measured by the amount
by which the               carrying amount of the assets exceeds the fair value of the
              assets. For purposes of determining impairment, the Company groups
              assets at the store level. Assets to be disposed of are reported
              at the lower of the carrying amount or fair value less costs to
              sell. No provisions for asset impairment in fiscal 2005, 2004, and
              2003 are included in the consolidated statements of operations.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (m) |  | Store
Closings
| | --- |  | --------------

| | Prior
to January 1, 2003, the Company recorded a provision for               store closure
expenses and a related liability in the period the               Company made the
decision to close a store and puts in a               definitive plan of closure for each
store that will be completed               in the near term. Such store closure expenses
consist primarily of               lease costs and property tax amounts that relate to
the period               subsequent to the date of closure. The liability is charged as
the               related amounts are paid. There were no significant adjustments to
              the liability in fiscal 2005, 2004, or 2003.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Beginning
with store closures for which the definitive plan was               established after
January 1, 2003, a provision for such store               closure expenses is recorded
when the Company discontinues using               the facility. A summary of the expense
and liability (included in               other current liabilities) related to store
closures as of and for               the years ended January 30, 2005; February 1, 2004;
and February               2, 2003 is as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                     | 2005 | 2004   | 2003
|------------------------------------ | ---- | ------ | ----
|Store closure liability at beginning |      |        |     
|of year                              |      | $   18 |     
|Store closure expense (included in   |     
|discontinued operations)             |      | 109    |     
|Payments                             |      | (20    | )   
|                                     |      |        |     
|Store closure liability at           |     
|end of year                          |      | $ 107  |     
|                                     |      |        |     

| | (n) |  | Discontinued
Operations
| | --- |  | -----------------------

| | The
Company has determined that each store is a component of the               entity and
that for each closed store (i) the operations and cash               flows of the
component have been eliminated from the ongoing               operations of the
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| | entity
and (ii) the entity will not have any               significant continuing involvement in
the operations of the               component after the store is closed. This is a result
of the               Companys stores being geographically disbursed. The results of
              operations for stores that have been closed by the Company (seven,
              eight, and five stores in fiscal years 2005, 2004, and 2003,
              respectively) have been reclassified to discontinued operations in
              the accompanying consolidated statements of operations for all
              periods presented.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (o) |  | Stock-based
Compensation
| | --- |  | ------------------------

| | The Company applies the intrinsic-value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations to account for its fixed-plan stock options. Under
this method, compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeded
the exercise price. If the Company had elected to recognize
compensation cost based on the fair value of the options granted at
grant date, net earnings and net earnings per share would have been
decreased to the pro forma amounts indicated in the table below:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    | 2005 | 2004    | 2003
|----------------------------------- | ---- | ------- | ----
|Net earnings as reported            |      | $3,923  |     
|Pro forma stock-based employee      |     
|compensation cost,
      net of tax |      | (29     | )   
|                                    |      |         |     
|Pro
      forma net earnings        |      | $3,894  |     
|                                    |      |         |     
|Earnings per share as reported:     |     
|Basic                               |      | $  0.89 |     
|Diluted                             |      | 0.88    |     
|                                    |     
|Earnings, per share, pro forma:     |     
|Basic                               |      | 0.89    |     
|Diluted                             |      | 0.87    |     

| |  |  | The fair value
      of each option grant is estimated on the date of grant using the Black-Scholes
      option-pricing model with the following assumptions:
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                 | 2003    | 
| | ------------------------------- | ------- | 
| | Expected dividend yield         |        | 
| | Expected stock price volatility | 38.6    | 
| | Risk-free interest rate         | 5.0     | 
| | Expected life of options        | 5 years | 

| | The
weighted average grant date fair value of options granted               during fiscal
2003 is $5.23 per share. No options were issued               during fiscal years 2005
and 2004.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (p) |  | Future
Accounting Pronouncement
| | --- |  | -------------------------------

| | In December 2004, the Financial Accounting Standards Board adopted
SFAS No. 123(R), Share-Based Payment, effective in the first quarter
of fiscal 2007 for the Company. SFAS No. 123(R) supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees. Generally,
the approach in SFAS No. 123(R) is similar to the approach described
in SFAS No. 123. However, SFAS No. 123(R) requires all share-based
payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair values.
Pro forma disclosure is no longer an alternative. Accordingly, the
adoption of SFAS No. 123(R)s fair value method will have an impact
on the Companys results of operations. The Company expects to adopt
SFAS No. 123(R) during the first quarter of fiscal 2007; however,
the Company has not yet determined the manner of adoption.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|(2) |  | Inventories
|--- |  | -----------

| | Inventories
at January 30, 2005 and February 1, 2004 are stated at the        lower of cost or net
realizable value as determined under the LIFO method        of accounting. Inventories at
January 30, 2005 and February 1, 2004 are        summarized as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 | 2005 | 2004     
|-------------------------------- | ---- | ---------
|FIFO cost:                       |      | $ 130,707
|Less markdown and other reserves |      | (626     
|Less LIFO reserve                |      | (595     
|                                 |      |          
|LIFO cost                        |      | $ 129,486
|                                 |      |          

|(3) |  | Credit
Arrangements, Notes Payable, and Long-term Debt
|--- |  | ------------------------------------------------------

| | The
Company entered into a loan agreement with its lenders on April 15,        2002 that
provides a revolving loan credit facility of up to $70,000 of        long-term financing.
The amount advanced (through a note or letters of        credit) to the Company bears
interest at (i) the prime rate plus a        margin, as defined, which varies based on
the amount outstanding (Base        Loan) or (ii) based on the Euro dollar rate plus a
margin, as defined,        (Index Loan). The amount advanced is generally limited to 70%
of eligible        inventory, as defined. Advances are secured by a security interest in
the        Companys inventory. The loan agreement contains various restrictions
       that are applicable when outstanding borrowings reach certain thresholds,
       including limitations on additional indebtedness, acquisitions of assets,
       and payment of dividends. The loan agreement expires on April 15, 2006.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Notes
payable outstanding at January 30, 2005 and February 1, 2004 under        the revolving
loan credit facility aggregated $4,023 and $4,958,        respectively. The lender had
also issued letters of credit aggregating        $3,611 and $2,417, respectively, at such
dates on behalf of the Company.        The interest rates on outstanding borrowings at
January 30, 2005 were        5.25%. The Company had additional borrowings available at
January 30,        2005 under the revolving loan credit facility amounting to $62,366.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Long-term
debt, exclusive of notes payable under the revolving loan        credit facility as
described above, at February 1, 2004 consisted of a        6.4% note payable, due in
monthly installments through January 2005 in        the amount of $533. The note was
secured by equipment.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Interest
expense on notes payable and long-term debt in fiscal 2005 and        2004 aggregated
$522 and $659, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------

|(4) |  | Employee
Benefits
|--- |  | -----------------

| | The
Company has a trusteed Profit Sharing Plan (the Plan) for the benefit        of eligible
employees. The Plan provides for an annual contribution of        not more than 20% of
earnings for the year before the profit sharing        contribution and Federal and state
income taxes, limited to 15% of the        annual compensation of the participants in the
Plan. Contributions by the        Company vest with the participants over a seven-year
period. The Company        reserves the right to discontinue its contributions at any
time. Expense        arising from such Plan for fiscal 2005, 2004, and 2003 amounted to
$420,        $699, and $573, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|(5) |  | Leases
|--- |  | ------

The Company is lessee under
long-term capital leases expiring at various        dates. The components of property
under capital leases as of January 30,        2005 and February 1, 2004 are as follows:

|                                        | 2005 | 2004    
|--------------------------------------- | ---- | --------
|Buildings                               |      | $14,890 
|Fixtures                                |      | 3,338   
|                                        |      |         
|                                        |      | 18,228  
|Less accumulated amortization           |      | 15,682  
|                                        |      |         
|Net
      property under capital leases |      | $  2,546
|                                        |      |         

| | The
Company also has noncancelable operating leases, primarily for buildings that expire at
various dates.
| | ----------------------------------------------------------------------------------------------------------

| | Future
minimum lease payments under all noncancelable leases, together        with the present
value of the net minimum lease payments pursuant to        capital leases, as of January
30, 2005 are as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                         | Capital
      leases | Operating
      leases
|-------------------------------------------------------- | -------------------- | ----------------------
|Fiscal year:                                             |                      |                       
|2006                                                     |                      | $1,339                
|2007                                                     |                      | 1,229                 
|2008                                                     |                      | 1,014                 
|2009                                                     |                      | 606                   
|2010                                                     |                      | 493                   
|Later years                                              |                      | 1,760                 
|                                                         |                      |                       
|Total
      minimum lease payments                       |                      | 6,441                 
|                                                         |                      |                       
|Less amount representing
      interest                  |                      | 1,859                 
|                                                         |                      |                       
|Present
      value of net minimum lease payments        |                      | 4,582                 
|                                                         |                      |                       
|Less current maturities                                  |                      | 856                   
|                                                         |                      |                       
|Capital
      lease obligations, less current maturities |                      | $3,726                
|                                                         |                      |                       

| | Minimum
payments have not been reduced by minimum sublease rentals of $20        under operating
leases due in the future under noncancelable subleases.        They also do not include
contingent rentals, which may be paid under        certain store leases on the basis of
percentage of sales in excess of        stipulated amounts. Contingent rentals applicable
to capital leases        amounted to $88, $87, and $82 for fiscal 2005, 2004, and 2003,
       respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Interest
on capital lease obligations in fiscal 2005, 2004 and 2003 aggregated $583, $672, and
$754, respectively.
| | ------------------------------------------------------------------------------------------------------------------

| | The
following schedule presents the composition of total rent expense for        all
operating leases for fiscal 2005, 2004, and 2003:
| | --------------------------------------------------------------------------------------------------------------------------------------

|                      | 2005 | 2004     | 2003
|--------------------- | ---- | -------- | ----
|Minimum rentals       |      | $ 10,973 |     
|Contingent rentals    |      | 967      |     
|Less sublease rentals |      | (58      | )   
|                      |      |          |     
|                      |      | $ 11,882 |     
|                      |      |          |     

---

|(6) |  | Income
Taxes
|--- |  | ------------

| | The
Companys income tax expense (benefit) consists of the following:
| | ---------------------------------------------------------------------

|                                       | 2005 | 2004    | 2003
|-------------------------------------- | ---- | ------- | ----
|Income tax expense (benefit) allocated |      |         |     
|to continuing operations               |      | $ 2,223 |     
|Income tax expense (benefit) allocated |     
|to discontinued
      operations       |      | (219    | )   
|                                       |      |         |     
|Total
      income tax expense         |      | $ 2,004 |     
|                                       |      |         |     

| | Income
tax expense (benefit) attributable to continuing operations for fiscal 2005, 2004, and
2003 consists of:
| | ---------------------------------------------------------------------------------------------------------------

|        | Current | Deferred | Total
|------- | ------- | -------- | -----
|2005:   |         |          |      
|Federal |         | $ 2,910  |      
|State   |         | 384      |      
|        |         |          |      
|        |         | $ 3,294  |      
|        |         |          |      
|2004:   |        
|Federal |         | $ 3,045  |      
|State   |         | 618      |      
|        |         |          |      
|        |         | $ 3,663  |      
|        |         |          |      

|        | Current | Deferred | Total
|------- | ------- | -------- | -----
|2003:   |         |          |      
|Federal |         | $2,237   |      
|State   |         | 406      |      
|        |         |          |      
|        |         | $2,643   |      
|        |         |          |      

| | Income
tax expense attributable to continuing operations was $2,223,        $2,691, and $3,068
for fiscal 2005, 2004, and 2003, respectively, and        differs from the amounts
computed by applying the Federal income tax rate        of 35% in 2005, 2004, and 2003 as
a result of the following:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       | 2005 | 2004    | 2003
|-------------------------------------- | ---- | ------- | ----
|Computed expected tax expense        |      | $ 2,302 |     
|State income taxes, net of the Federal |     
|income tax benefit                     |      | 137     |     
|Adjustment for prior period taxes      |      |        |     
|Other, net                             |      | (216    | )   
|                                       |      |         |     
|                                       |      | $ 2,223 |     
|                                       |      |         |     

| | During
fiscal year 2004, the Company, based on current information,        analyzed its income
tax liability account and determined that it was        overaccrued with respect to
certain matters arising in prior years. The        Company reversed such overaccrual of
approximately $618 during fiscal        2004. Approximately $200 of this adjustment was
for previously        unidentified state tax credits relating to prior years, which the
Company        became aware of in the fourth quarter of fiscal 2004.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| | The
tax effects of temporary differences that give rise to significant        portions of
deferred tax assets and liabilities at January 30, 2005 and        February 1, 2004 are
presented below:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                 | 2005 | 2004    
|---------------------------------------------------------------- | ---- | --------
|Deferred tax assets:                                             |      |         
|Capital leases                                                   |      | $    779
|Other liabilities                                                |      | 2,882   
|State net operating
      loss carryforwards                     |      | 9       
|                                                                 |      |         
|Total
      gross deferred tax assets                            |      | 3,670   
|                                                                 |      |         
|Less valuation allowance                                         |      | (9      
|                                                                 |      |         
|Net
      deferred tax assets                                    |      | 3,661   
|                                                                 |      |         
|Deferred tax liabilities:                                        |     
|Inventories, principally
      due to differences in the LIFO    |     
|reserve
      arising from a prior business combination          |     
|accounted
      for as a purchase                                |      | 2,412   
|Property and equipment,
      due to differences in depreciation |     
|and
      a prior business combination accounted for as          |     
|a
      purchase                                                 |      | 587     
|Other assets                                                     |      | 226     
|                                                                 |      |         
|Total
      gross deferred tax liabilities                       |      | 3,225   
|                                                                 |      |         
|Net
      deferred tax (asset) liability                         |      | $  (436 
|                                                                 |      |         

| | At
January 30, 2005, the Company has net operating loss carryforwards for        state
income tax purposes in various states aggregating $174, which are        available to
offset future state taxable income in those states, if any,        expiring in fiscal
2006. The valuation allowance relates to the net        operating loss (NOL)
carryforwards.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|(7) |  | Stock
Option Plan
|--- |  | -----------------

| | The
Company has a stock option plan under which options to purchase        500,000 shares of
common stock may be granted to key employees. The plan        provides that the option
price shall not be less than the fair market        value of the shares on the date of
grant and that unexercised options        expire five years from that date. The options
become exercisable in equal        amounts over a four-year period from the grant date.
Information        regarding options that were outstanding at January 30, 2005; February
1,        2004; and February 2, 2003 is presented below:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                      | Number
      of
      shares | Weighted
      average
      exercise
      price
|------------------------------------- | ---------------------------- | -------------------------------------------------
|Options outstanding, February 3, 2002 |                              | 491,550                                          
|Issued                                |                              | 65,000                                           
|Exercised                             |                              | (117,475                                         
|Canceled                              |                              | (4,700                                           
|                                      |                              |                                                  
|Options outstanding, February 2, 2003 |                              | 434,375                                          
|Issued                                |                              |                                                 
|Exercised                             |                              | (108,559                                         
|Canceled                              |                              | (43,845                                          
|                                      |                              |                                                  
|Options outstanding, February 1, 2004 |                              | 281,971                                          
|Issued                                |                              |                                                 
|Exercised                             |                              | (180,263                                         
|Canceled                              |                              | (30,534                                          
|                                      |                              |                                                  
|Options outstanding, January 30, 2005 |                              | 71,174                                           
|                                      |                              |                                                  

|        | Options outstanding | Options exercisable
|------- | ------------------- | -------------------
|
|$  7.94 |                     | 22,380             
|12.50   |                     | 48,794             

|(8) |  | Stockholders
Equity
|--- |  | --------------------

The Companys board of directors has
approved a plan to repurchase up to        1,411,000 shares of the Companys common stock
(the Stock Repurchase        Program). Purchases pursuant to the Stock Repurchase Program
are to be        made from time to time in the open market or directly from stockholders
       at prevailing market prices. The Stock Repurchase Program is anticipated        to
be funded with internally generated cash and borrowings under the        credit facility.
As of January 30, 2005, the Company had purchased and        retired 1,084,600 shares of
common stock for $8,869. All shares purchased        by the Company under this program
are retired.

---

|(9) |  | Earnings
Per Share
|--- |  | ------------------

| | The
following is a reconciliation of the outstanding shares utilized in the computation of
earnings per share:
| | --------------------------------------------------------------------------------------------------------------

|                                       | 2005 | 2004      | 2003
|-------------------------------------- | ---- | --------- | ----
|Weighted average shares outstanding    |      |           |     
|(basic)                                |      | 4,391,538 |     
|Effect of dilutive options to purchase |     
|common stock                           |      | 72,878    |     
|                                       |      |           |     
|As adjusted for diluted                |     
|calculation                            |      | 4,464,416 |     
|                                       |      |           |     

| | Employee
stock options of 101,000 for the year ended February 2, 2003 are        not included in
the computation of diluted earnings because to do so        would have been antidilutive
for the period. Such options were dilutive        to basic earnings per share in
subsequent years.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) |  | Quarterly
Financial Information (Unaudited)
|---- |  | -------------------------------------------

| | Financial
results by quarter are as follows:
| | --------------------------------------------

|                                  | First
quarter | Second
quarter | Third
quarter | Fourth
quarter
|--------------------------------- | ------------- | -------------- | ------------- | --------------
|2005:                             |               |                |               |               
|Net sales                         |               | $101,624       |               | 108,357       
|Gross margin                      |               | 33,706         |               | 35,630        
|Earnings from                     |              
|continuing
      operations       |               | 709            |               | 1,239         
|Net earnings                      |               | 687            |               | 1,187         
|Net earnings per
      share (a): |              
|Basic                             |               | 0.16           |               | 0.27          
|Diluted                           |               | 0.16           |               | 0.27          

|                                  | First
      quarter | Second
      quarter | Third
      quarter | Fourth
      quarter
|--------------------------------- | ------------------- | -------------------- | ------------------- | --------------------
|2004:                             |                     |                      |                     |                     
|Net sales                         |                     | $97,955              |                     | 107,349             
|Gross margin                      |                     | 32,693               |                     | 35,097              
|Earnings from                     |                    
|continuing
      operations       |                     | 622                  |                     | 1,352               
|Net earnings                      |                     | 558                  |                     | 1,599               
|Net earnings per
      share (a): |                    
|Basic                             |                     | 0.13                 |                     | 0.38                
|Diluted                           |                     | 0.13                 |                     | 0.37                

|(a) |  | Earnings
per share amounts are computed independently for each of               the quarters
presented. Therefore, the sum of the quarterly               earnings per share in fiscal
2005 and fiscal 2004 does not equal               the total computed for the year.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) |  | The
amounts shown for net sales, gross margin, and earnings from               continuing
operations for the first, second, and third quarters do               not agree to
previously reported amounts due to reclassifications               that have been made
for discontinued operations (see also note               1(n)).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|(11) |  | Fair
Value of Financial Instruments
|---- |  | -----------------------------------

| | The Company has determined the fair value of its financial
instruments in accordance with SFAS No. 107, Disclosures About Fair
Value of Financial Instruments. For long-term debt, the fair value
is estimated by discounting the future cash flows at rates currently
available for similar types of debt instruments. Such fair value
approximated the carrying value of long-term debt at February 1,
2004. For notes payable under revolving loan credit facility, fair
value approximates the carrying value due to the variable interest
rate.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For
all other financial instruments including cash, receivables, accounts        payable, and
accrued expenses, the carrying amounts approximate fair        value due to the short
maturity of those instruments.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(12) |  | Related
Party Transactions
|---- |  | --------------------------

| | Operating
lease payments to related parties (board members and related        companies) amounted
to approximately $673, $679, and $683 in fiscal 2005,        2004, and 2003, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
fiscal 2005, 2004, and 2003, the Company paid a consulting firm        $15, $270, and
$178, respectively, to develop certain retailing        initiatives. A board member of
the Company has an ownership interest in        the consulting firm.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) |  | Subsequent
Events
|---- |  | -----------------

| | Subsequent
to year-end, the Company announced that it would be closing 8        ALCO and 12 Duckwall
stores. The Company anticipates that the aggregate        cost to close these stores
before income taxes will be in the range of        $3,800 to $4,800. The 20 stores that
are closing produced gross sales of        $19,900 in fiscal year 2005.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
April 19, 2005, the Company reached an agreement with a significant        stockholder to
repurchase 399,362 shares of the Companys common stock        for approximately $7,200.
These shares will be retired.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(14) |  | Business
Operations and Segment Information
|---- |  | -------------------------------------------

| | The
Companys business activities include operation of ALCO Discount        Stores in towns
with populations that are typically less than 5,000 not        served by other regional
or national retail discount chains, and Duckwall        variety stores that offer a more
limited selection of merchandise, which        are primarily located in communities of
less than 2,500 residents.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For
financial reporting purposes, the Company has established two        operating segments:
ALCO Discount Stores and All other, which        includes the Duckwall variety stores
and other business activities, such        as general office, warehouse, and distribution
activities.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

Segment
  Information

|                                             | 2005 | 2004        | 2003
|-------------------------------------------- | ---- | ----------- | ----
|Net sales:                                   |      |             |     
|ALCO Discount Stores                         |      | $ 403,885   |     
|All other:                                   |     
|External                                     |      | 33,443      |     
|Intercompany                                 |      | 234,284     |     
|                                             |      |             |     
|                                             |      | $ 671,612   |     
|                                             |      |             |     
|Depreciation and amortization:               |     
|ALCO Discount Stores                         |      | $     4,060 |     
|All other                                    |      | 2,648       |     
|                                             |      |             |     
|                                             |      | $     6,708 |     
|                                             |      |             |     
|Income (expense) from continuing operations: |     
|ALCO
      Discount Stores                   |      | $   35,087  |     
|All
      other                              |      | (27,550     | )   
|                                             |      |             |     
|                                             |      | $     7,537 |     
|                                             |      |             |     
|Capital expenditures:                        |     
|ALCO Discount Stores                         |      | $     4,872 |     
|All other                                    |      | 1,673       |     
|                                             |      |             |     
|                                             |      | $     6,545 |     
|                                             |      |             |     
|Identifiable assets:                         |     
|ALCO Discount Stores                         |      | $ 125,620   |     
|All other                                    |      | 37,917      |     
|                                             |      |             |     
|                                             |      | $ 163,537   |     
|                                             |      |             |     

Income from operations, as reflected
in the above segment information,        has been determined differently than income from
operations in the        accompanying consolidated statements of operations as follows:

Intercompany Sales

Intercompany sales represent
transfers of merchandise from the warehouse        to ALCO Discount Stores and Duckwall
variety stores.

Intercompany Expense
Allocations

General and administrative expenses
incurred at the general office have        not been allocated to the ALCO Discount Stores
for purposes of        determining income from operations for the segment information.

Warehousing and distribution costs,
including freight applicable to        merchandise purchases, have been allocated to the
ALCO Discount Stores        segment based on the Companys customary method of allocation
for such        costs (primarily as a stipulated percentage of merchandise purchases).

Inventories

---

Leases

All leases are accounted for as
operating leases for purposes of        determining income from operations for purposes
of determining the        segment information for the ALCO Discount Stores, whereas
capital leases        are accounted for as such in the consolidated statements of
operations.

Identifiable assets, as reflected in
the above segment information,        include cash and cash equivalents, receivables,
inventory, property and        equipment, and property under capital leases.

A reconciliation of the segment
information to the amounts reported in        the consolidated financial statements is
presented below:

|                                          | 2005 | 2004        | 2003
|----------------------------------------- | ---- | ----------- | ----
|Net sales per above segment information   |      | $ 671,612   |     
|Intercompany elimination                  |      | (234,284    | )   
|Sales included in discontinued operations |      | (3,474      | )   
|                                          |      |             |     
|Net
      sales per consolidated          |     
|statements
      of operations            |      | $ 433,854   |     
|                                          |      |             |     
|
|
|
|Income from continuing operations per     |     
|above segment information                 |      | $     7,537 |     
|Property costs                            |      |            |     
|Leases                                    |      | 269         |     
|                                          |      |             |     
|Income
      from continuing              |     
|operations
      per consolidated         |     
|statements
      of operations            |      | $     7,806 |     
|                                          |      |             |     

---

|ITEM 9. |  | CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
|------- |  | -------------------------------------------------------------------------------------------

None

ITEM 9A. CONTROLS AND
PROCEDURES.

As
of the end of the period covered by this report, an evaluation was carried out under the
supervision and with the participation of our management, including our President and
Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. There are inherent limitations to the effectiveness
of any system of disclosure controls and procedures, including the possibility of human
error and the circumvention or overriding of the controls and procedures. Accordingly,
even effective disclosure controls and procedures can only provide reasonable assurance
of achieving their control objectives. Based upon and as of the date of the evaluation,
our President and Chief Financial Officer concluded that the design and operation of
these disclosure controls and procedures were effective in all material respects to
provide reasonable assurance that information required to be disclosed in the reports we
file and submit under the Exchange Act is recorded, processed, summarized and reported as
and when required.

There
were no changes in our internal control over financial reporting that occurred during the
year ended January 30, 2005 that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.

ITEM 9B. OTHER
INFORMATION.

None

PART III

ITEM 10.
         DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The
Registrants Proxy Statement to be used in connection with the Annual Meeting of
Stockholders to be held on May 26, 2005, contains under the caption Election of
Directors certain information required by Item 10 of Form 10-K, and such information is
incorporated herein by this reference. The information required by Item 10 of Form 10-K
as to executive officers is set forth in Item 1 of this Form 10-K. The Registrants Proxy
Statement to be used in connection with the Annual Meeting of Stockholders to be held on
May 26, 2005, contains under the caption Section 16(a) Beneficial Ownership Reporting
Compliance certain information required by Item 10 of Form 10-K, and such information is
incorporated herein by this reference. The Registrants Proxy Statement also contains
under the caption Code of Ethics certain information required by Item 10 of Form 10-K,
and such information is incorporated herein by this reference.

ITEM 11.
         EXECUTIVE COMPENSATION.

The
Registrants Proxy Statement to be used in connection with the Annual Meeting of
Stockholders to be held on May 26, 2005, contains under the caption Executive
Compensation and Other Information the information required by Item 11 of Form 10-K, and
such information is incorporated herein by this reference (except that the information
set forth under the following subcaptions is expressly excluded from such incorporation:
Compensation Committee Report, Audit Committee Report, and Company Performance).

|ITEM
      12. |  | SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
      MATTERS.
|-------------- |  | -----------------------------------------------------------------------------------------------------------

The
Registrants Proxy Statement to be used in connection with the Annual Meeting of
Stockholders to be held on May 26, 2005, contains under the caption Ownership of
Duckwall Common Stock the information required by Item 12 of Form 10-K and such
information is incorporated herein by this reference.

ITEM 13.
         CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The
Registrants Proxy Statement to be used in connection with the Annual Meeting of
Stockholders to be held on May 26, 2005, contains under the caption Compensation
Committee Interlocks and Related Party Transactions the information required by Item 13
of Form 10-K and such information is incorporated herein by this reference.

---

ITEM 14.
         PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The
Registrants Proxy Statement to be used in connection with the Annual Meeting of
Stockholders to be held on May 26, 2005, contains under the caption Ratification of
Selection of Independent Accountants the information required by Item 14 of Form 10-K
and such information is incorporated herein by this reference.

PART IV

ITEM 15.
         EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

| | (a) |  | Financial
Statements, Financial Statement Schedules, and Exhibits
| | --- |  | -----------------------------------------------------------------

| | (1) |  | Consolidated
Financial Statements The financial statements are listed in the index for Item 8 of
this Form 10-K.
| | --- |  | ----------------------------------------------------------------------------------------------------------------

| | (b) |  | Exhibits
| | --- |  | --------

| | The
exhibits filed with or incorporated by reference in this report are listed below:
| | -------------------------------------------------------------------------------------

|Number |  | Description
|------ |  | -----------

|3.1 |  | Amended
and Restated Articles of Incorporation (filed as Exhibit             3(a) to Companys
Registration Statement on Form S-1 and hereby             incorporated herein by
reference).
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 |  | Certificate
of Amendment to the Articles of Incorporation (filed as Exhibit 3(b) to Companys Annual
Report on Form 10-K for the fiscal year ended January 29, 1995, and incorporated herein
by reference) (filed as        Exhibit 3(b) to Companys Annual Report on Form 10-K for
the fiscal year ended January 29, 1995, and incorporated herein by reference.)
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.3 |  | Bylaws
(filed as Exhibit 3(b) to Companys Registration Statement on Form S-1 and hereby
incorporated herein                                                    by reference).
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.1 |  | Specimen
Common Stock Certificates (filed as Exhibit 4.1 to Companys Registration Statement on
Form S-1 and incorporated herein by reference).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------

|4.2 |  | Reference
is made to the Amended and Restated Articles of             Incorporation and Bylaws
described above under 3(1) and 3(3),             respectively (filed as Exhibit 4(a) to
Companys Registration             Statement on Form S-1 and hereby incorporated herein
by reference).
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.3 |  | Reference
is made to the Certificate of Amendment to the Articles of Incorporation described above
under 3(2) (filed as Exhibit 3(2) to Companys Annual Report on Form 10-K for the fiscal
year ended January 29, 1995, and incorporated herein by reference).
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.4 |  | Form
of 10% Subordinated Notes (filed as Exhibit 4(c) to Companys Registration Statement on
Form S-1 and hereby incorporated herein by reference).
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

|10.11 |  | Employment
Agreement dated December 28, 2000 between the Company and          Glen L. Shank (filed
as Exhibit 10.12 to the Companys Annual Report on          Form 10-K for the fiscal year
ended February 2, 2003 and hereby          incorporated by reference).
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.12 |  | Employment
Agreement dated December 28, 2000 between the Company and          James E. Schoenbeck
(filed as Exhibit 10.12 to the Companys Annual          Report on Form 10-K for the
fiscal year ended February 2, 2003 and          hereby incorporated by reference).
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.13 |  | Employment
Agreement dated December 28, 2000 between the Company and          James R. Fennema
(filed as Exhibit 10.13 to the Companys Annual Report          on Form 10-K for the
fiscal year ended February 2, 2003 and hereby          incorporated by reference).
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.14 |  | Employment
Agreement dated December 28, 2000 between the Company and          Richard A. Mansfield
(filed as Exhibit 10.14 to the Companys Annual          Report on Form 10-K for the
fiscal year ended February 2, 2003 and          hereby incorporated by reference).
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|10.15 |  | Employment
Agreement dated December 28, 2000 between the Company and          Tom L. Canfield, Jr.
(filed as Exhibit 10.15 to the Companys Annual          Report on Form 10-K for the
fiscal year ended February 2, 2003 and          hereby incorporated by reference).
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.16 |  | Loan
and Security Agreement, dated as of April 15, 2002, between the          Company and
Fleet Retail Finance Inc. (filed as Exhibit 10.16 to the          Companys Annual Report
on Form 10-K for the fiscal year ended February          2, 2003 and hereby incorporated
by reference).
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.17 |  | Joinder
Agreement and First Amendment to Loan and Security Agreement          dated September 9,
2002 among the Company, Fleet Retail Finance Inc.,          and DA Good Buys, Inc. (filed
as Exhibit 10.17 to the Companys Annual          Report on Form 10-K for the fiscal year
ended February 2, 2003 and          hereby incorporated by reference).
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.18 |  | Separation
Agreement and Release, dated as of December 27, 2004, between the Company and Glen L.
Shank.
|----- |  | -------------------------------------------------------------------------------------------------------

|10.19 |  | Memorandum
of Understanding, dated March 15, 2005 between the Company and Bruce C. Dale.
|----- |  | ----------------------------------------------------------------------------------------

|10.20 |  | Stock
 Purchase  Agreement  dated  April 19,  2005 with K&A Asset  Management,  LLC on
behalf of  Kenneth A. Macke          Revocable Trust.
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------

|21.1 |  | Amended
and Restated List of Subsidiaries of the Company (filed as          Exhibit 21.1 to the
Companys Annual Report on Form 10-K for the fiscal          year ended February 2, 2003
and hereby incorporated by reference).
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|23.1 |  | Consent
of Independent Auditors.
|---- |  | --------------------------------

|31.1 |  | Certification
of Chief Executive Officer of Duckwall-ALCO Stores, Inc.          dated April 29, 2005,
pursuant to Rule 13a-4(a) under the Securities          Exchange Act of 1934, as adopted
pursuant to Section 302 of the          Sarbanes-Oxley Act of 2003.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|31.2 |  | Certification
of Chief Financial Officer of Duckwall-ALCO Stores, Inc.          dated April 29, 2005,
pursuant to Rule 13a-4(a) under the Securities          Exchange Act of 1934, as adopted
pursuant to Section 302 of the          Sarbanes-Oxley Act of 2003.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.1 |  | Certification
of Chief Executive Officer of Duckwall-ALCO Stores, Inc,          dated April 29, 2005,
pursuant to 18 U.S.C. Section 1350, as adopted          pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, which is          furnished with this Annual Report on Form
10-K for the year ended          January 30, 2005 and is not treated as filed in reliance
upon ss.          601(b)(32) of Regulations S-K.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.2 |  | Certification
of Chief Financial Officer of Duckwall-ALCO Stores, Inc.,          dated April 29, 2005,
pursuant to 18 U.S.C. Section 1350, as adopted          pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, which is          furnished with this Annual Report on Form
10-K for the year ended          January 30, 2005 and is not treated as filed in reliance
upon ss.          601(b)(32) of Regulations S-K.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

---

SIGNATURES

Pursuant to the requirements of
Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

| | DUCKWALL-ALCO
      STORES, INC.
| | --------------------------------
| |                                 
| | by                              

Dated: April 29, 2005

Pursuant
to the requirement of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated:

| | Signature and Title                                                                                                                                                 | Date                
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------
| |                                                                                                                                                                     |                     
| | /s/ Bruce C. Dale
      Bruce C. Dale 
         President and Chief Executive Officer 
          (Principal Executive Officer)                                      | April 29, 2005      
| |                                                                                                                                                                     |                     
| | /s/ Richard A. Mansfield
      Richard A. Mansfield
      
          Vice President - Finance and Treasurer 
          (Principal Financial and Accounting Officer) | April
      29, 2005
| |                                                                                                                                                                     |                     
| | /s/ Warren H. Gfeller
      Warren H. Gfeller 
          Director                                                                                                   | April
      29, 2005
| |                                                                                                                                                                     |                     
| | /s/ Dennis A. Mullin
      Dennis A. Mullin 
          Director                                                                                                     | April
      29, 2005
| |                                                                                                                                                                     |                     
| | /s/ Lolan C. Mackey
      Lolan C. Mackey 
          Director                                                                                                       | April
      29, 2005
| |                                                                                                                                                                     |                     
| | /s/ Jeffrey J. Macke
      Jeffrey J. Macke 
          Director                                                                                                     | April
      29, 2005
| |                                                                                                                                                                     |                     
| | /s/ Robert L. Ring
      Robert L. Ring 
          Director                                                                                                         | April
      29, 2005



---